I. Performance and Valuation of Global Equity Indices
Data Sources: Bloomberg, Tiger Asset Management
Key Highlights
◼ Last week, global capital markets continued to rise. The Nikkei increased by nearly 5% over the week, while Hong Kong’s Hang Seng Index and the Tech Index both saw gains of over 2%. Additionally, mainland Chinese stocks performed well, with traditional sectors and technology sectors taking turns leading the gains, resulting in nearly 2% returns for the CSI 300 and the Shanghai Composite Index. In contrast, although the three major U.S. indices had smaller gains, both the S&P 500 and the NASDAQ reached new all-time highs again.
◼ Last week, the U.S. stock market continued to experience an AI-led rally. On the macro front, tariffs remained the main issue. The EU-U.S. trade agreement was finalized, with Europe accepting nearly full compromise in exchange for a 15% tariff outcome. However, this is a positive for the market as the uncertainty around EU-U.S. decoupling has been significantly reduced. Currently, the market seems almost immune to tariffs, as it appears to be convinced that Trump will definitely proceed with TACO, and the economic impact of the tariffs will be controllable. We believe this optimism may be excessive and caution is needed for unexpected shocks from events and data. Meanwhile, the White House launched the "AI National Strategy" last week, which defines the future direction of U.S. AI development in three key areas. This means that both the top-level strategy and actions from industry companies are increasing the certainty of the AI sector.
◼ This week will mark a super event week, with a focus on macro data such as Q2 GDP, the Federal Reserve’s FOMC meeting, June PCE, and July non-farm payrolls and unemployment rate, as well as earnings reports from companies like Microsoft, META, and Amazon.
II. Key Market Themes
U.S. Stock Market: Super Event Week Approaches – How to Respond?
Over the past week, market sentiment in the U.S. stock market improved, maintaining an overall upward trend. Both the S&P 500 and NASDAQ set new all-time highs again. According to statistics, since April 23, the S&P 500 has closed above its 20-day moving average for more than 60 consecutive days, marking the longest uninterrupted rise since 1998 without a significant pullback.
Last week, the main macro driver continued to be tariffs. On one hand, the EU and U.S. unexpectedly reached a 15% tariff agreement, significantly lower than the 30% initially threatened by Trump. In exchange, Europe committed to opening its markets, increasing investments by $600 billion, and purchasing $750 billion worth of U.S. energy and defense products. This result can be seen as a comprehensive compromise by Europe, but from a capital market perspective, it has significantly reduced the risk of EU-U.S. decoupling, which is positive for the market. On the other hand, the third round of China-U.S. trade talks is about to begin in Stockholm. Previously, both sides eased restrictions on exports of rare earths and chips, and there are recent rumors that the top leaders of both countries may meet soon, all of which are positive signs. As of now, the U.S. has reached trade agreements with key countries such as Europe, Vietnam, and Japan. The situation with China-U.S. relations is unique and will take time to resolve, while Canada and Mexico remain significant uncertainties.
Interestingly, the U.S. stock market now seems almost immune to tariffs, with the belief that Trump will certainly push through TACO. We believe the August 1st deferral deadline may not be extended again, but this won’t stop the Trump administration from collecting tariffs while negotiating. We have previously analyzed that an average tariff of around 15% could cover the net costs of the "Great and Beautiful" bill. Additionally, U.S. economic data remains relatively strong, and since July, Citigroup's Economic Surprise Index has been trending upward, still remaining above the zero line, leaving room for positive surprises. Therefore, Trump still has leverage. In summary, we believe the market is currently underestimating the impact of tariffs. If subsequent negotiations encounter obstacles or if the tariff impact exceeds expectations, the market is likely to experience a correction.
Data Source: Bloomberg
In addition to tariffs, last week the White House released a 28-page document, America’s AI Action Plan. The document outlines the future direction of AI development in the U.S., focusing on three key areas: accelerating innovation, building infrastructure, and leading international governance and security. Overall, this is a policy framework without specific implementation details. It is evident that, compared to Biden's previous stance on AI, Trump is now adopting a more open and bold approach, which is positive for the market. Furthermore, last week, $谷歌(GOOG)$ was the first to release its Q2 earnings report, surpassing both revenue and profit expectations. More importantly, the company raised its 2025 capital expenditure forecast to $85 billion and expects further increases in 2026. Thus, whether from top-level strategy or significant financial investments by industry leaders, AI is currently the most certain sector and is our largest holding in U.S. stocks.
This week, the U.S. stock market will face a major test with both a super macro week and super earnings week. There will be critical data, including the Federal Reserve’s FOMC meeting, GDP, PCE, non-farm payrolls, and unemployment rate, as well as earnings reports from tech giants like $微软(MSFT)$ , $Meta Platforms, Inc.(META)$ , $苹果(AAPL)$ , and $亚马逊(AMZN)$ . In this regard, former Goldman Sachs analyst Scott Rubner believes that while the market is currently very bullish, it is not yet time to short. The main reasons are threefold: first, institutional positioning is relatively low, as investors are afraid of underperforming; second, with the earnings season concluding, corporate buybacks will likely resume; and third, retail investors are strongly inclined to buy the dip, and this momentum is still in place. Therefore, at least in the first half of August, an AI-led rally is highly likely to continue. However, starting in the second half of August, macro risks such as the global central bank annual meeting and U.S. Treasury refinancing will need to be watched carefully. Additionally, according to the calendar effect, the average return for the S&P 500 in July is the highest of the year, while September tends to have the worst average performance. We share a similar view. First, big tech earnings may either beat or miss expectations, but one thing is certain: capital expenditures will only increase. Second, the most important macro factor right now is inflation, with the July CPI not being released until mid-August. Therefore, in the short term, U.S. stock market volatility may increase, but there is no need for excessive concern. It is still advisable to maintain an appropriate position and be well-prepared.
Data Source: Citadel Securities
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