I. Performance and Valuation of Global Equity Indices
Data Sources: Bloomberg, Tiger Asset Management
Key Highlights
◼ Last week, influenced by geopolitical conflicts in the Middle East, global capital markets experienced a pattern of rising and then falling, with overall continued volatility. The major U.S. stock indices, including the S&P 500, Nasdaq, and Russell, saw mixed movements, with weekly returns close to 0. In contrast, European and Hong Kong markets, as well as other non-U.S. developed markets, were relatively weaker, with the Hang Seng Index and the Hang Seng Tech Index both dropping by more than 1%.
◼ In the U.S., macroeconomic data last week did not present any surprises. Although May retail sales were below expectations, this was primarily due to declines in automobile sales and gas stations. The core Control Group, however, slightly exceeded expectations and remained quite robust. Additionally, the Federal Reserve's June FOMC meeting was largely in line with expectations, maintaining the current benchmark interest rate. The Fed's internal disagreement remains significant, with 42% supporting no rate cuts this year, and another 42% supporting two rate cuts this year. Inflation data for June and July will likely decide the future path for rate cuts. Meanwhile, the Middle East geopolitical conflict saw twists and turns, with U.S. involvement and Iranian retaliation, but the situation has largely stabilized, and oil prices have dropped significantly.
◼ This week, focus will be on speeches from Federal Reserve officials, the May PCE data, and earnings reports from AI-related stocks such as Micron.
II. Key Market Themes
U.S. Stocks: Stable and Steady with No Major Surprises
Last week, the U.S. stock market continued its slight, range-bound fluctuations. In terms of macro data, May retail sales and the Fed's FOMC meeting showed minor fluctuations but were generally in line with expectations, and did not alter the overall narrative in the market. Specifically, May retail sales declined by 0.9% month-on-month, which at first glance seemed below expectations and worse than the previous month's figures. However, a deeper dive into the subcategories reveals that the primary drag came from automobile sales and gas stations — one due to a distortion from April's rush to import, and the other due to the ongoing decline in oil prices. Both of these are understandable and acceptable outcomes. More importantly, the core Control Group showed a 0.4% increase month-on-month, significantly surpassing both last month's figure and market expectations. Therefore, while the retail data appeared weaker than expected, it does not signal a recessionary panic, and inflation remains the more pressing issue.
On the other hand, the June FOMC meeting held last week unfolded largely as expected, with the Federal Reserve holding rates steady. The economic projections seem to have worsened, with the Fed raising its inflation forecast for the end of the year and lowering its GDP growth projection. However, in the accompanying statement, the Fed adjusted its language on economic uncertainty, indicating that uncertainties about the economic outlook have diminished. We believe these two points are not contradictory; compared to the lack of trade policy changes in March, the economic outlook has indeed deteriorated, but compared to last month, uncertainty has somewhat eased.
Additionally, the dot plot from this meeting was intriguing. Of the 19 officials, 8 supported no rate cuts by the end of the year, while another 8 supported two rate cuts. Statistically, the median suggests two rate cuts, but it's clear that there is significant internal division at the Fed. This divide is evident in recent speeches from officials, with more conservative members like Chairman Jerome Powell emphasizing "patience and caution," while more hawkish officials like Governor Christopher Waller have indicated a desire for quick action, even suggesting that rate cuts could be considered as soon as July. We believe the key point of divergence at the Fed currently lies in the impact of tariffs, which means that inflation data over the next two months will be crucial in determining the Fed's path on rate cuts.
Data Source: Federal Reserve Official Website
Compared to the macroeconomic data, the most significant market driver last week was the geopolitical conflict, with rapidly changing news. We will refrain from discussing politics and will only state a few objective facts. Firstly, the United States officially intervened in the U.S.-Iran conflict over the weekend, conducting airstrikes on several nuclear facilities in Iran. This initially caused market panic and a sharp decline. However, shortly after, Trump declared that “the mission is accomplished and there is no intention to escalate further.” In the past few days, the situation became even more dramatic, with Iran launching missiles at U.S. military bases, and countries across the Middle East announcing the closure of their airspace. Yet, at the same time, Trump took to social media to thank Iran for providing advance notice, and oil prices not only failed to rise but actually plummeted significantly.
Continuing with last week’s trajectory, Trump’s primary concern is inflation and the Fed’s reluctance to lower interest rates. Therefore, he cannot afford to see oil prices surge uncontrollably. This is why, after Iran’s symbolic retaliation, Trump immediately intervened to de-escalate the conflict, even publicly urging Israel to stop its attacks. On Polymarket, the probability of Iran blocking the Strait of Hormuz has dropped from over 50% at the weekend to nearly 0% now. Hence, we believe that while there may still be tensions between the U.S. and Iran, the impact of this conflict on the capital markets is likely to be over.
Data Source: Polymarket
Currently, the S&P 500 and Nasdaq are nearing historical highs. Looking at recent market movements, it seems that the impact of macroeconomic factors is gradually diminishing, with AI and technology once again emerging as the main narrative driving the market's rally. For instance, $特斯拉(TSLA)$ launched its autonomous Robotaxi service last week, which directly propelled its stock price to rise by nearly 10% in a single day. We believe that, ahead of the June inflation data release, there are currently no significant negative macroeconomic factors on the horizon. However, it’s important to note that the 90-day tariff exemption is set to expire in early July. Although an extension is highly likely, there is still a possibility that Trump may apply further pressure. Additionally, whether the large U.S. tax reform bill will pass smoothly will also be a key event to watch. In summary, we continue to maintain last week's outlook. The external and internal conflicts have largely stabilized, and we remain relatively optimistic about the future of the U.S. stock market.
Disclaimer
1. The information contained in this document is for reference only and does not constitute any financial advice or a transaction offer, solicitation, suggestion, recommendation or any guarantee for any financial product, strategy or service. You should make your own investment decisions and bear the risk of investment responsibility independently.
2. The content of this document is based on reliable data sources that the staff believed to be reliable at the time of production. The Tiger Investment Research team may adjust without prior notice. The Tiger Investment Research team does not guarantee the accuracy, reliability or completeness of the content of this document, and does not assume any responsibility for any transactions arising from the content of this article and its derivative consequences.
3. This document is confidential and non-public and can only be accessed by professionals with corresponding risk-taking capabilities and preferences. Without the prior consent of Tiger, no one may copy or distribute it in any form.
Comments