I. Performance and Valuation of Global Equity Indices
Data Sources: Bloomberg, Tiger Asset Management
Key Highlights
◼ Last week saw heightened volatility in global capital markets, with major equity indices worldwide registering varying degrees of decline. The S&P 500 and Nasdaq 100 in the U.S. both fell over 2% weekly - marking their first close below the 20-day moving average in more than three months. Meanwhile, the Russell 2000 small-cap index, European equities, and Hong Kong's Hang Seng TECH Index showed even steeper declines, all dropping more than 4% for the week.
◼ U.S. markets navigated a challenging macro and earnings week. While Q2 GDP appeared to significantly exceed expectations, this was primarily due to a sharp slowdown in imports, with personal consumption remaining relatively weak. June PCE inflation data echoed the narrative from CPI two weeks prior - service inflation stabilized while goods inflation expanded noticeably, showing gradually emerging tariff impacts. Friday's nonfarm payrolls delivered an unexpected negative surprise, with not only the headline number missing estimates significantly but also substantial downward revisions to May and June data. Consequently, while Fed rate cut expectations rose markedly, market concerns about stagflation also intensified. On the earnings front, major tech companies reported strong results, with both financial performance and capital expenditures exceeding expectations.
◼ This week's key focus areas include: U.S. ISM Services PMI, progress in U.S. tariff negotiations, and Treasury auction dynamics.
II. Key Market Themes
U.S. Stocks: Finally a Pullback - What's Next?
Over the past week, U.S. stocks finally began correcting under the influence of multiple macroeconomic events. Both the S&P and Nasdaq ended their multi-day winning streaks, closing below their 20-day moving averages for the first time in over three months. The macroeconomic data last week could best be described as a rollercoaster. First came Q2 GDP, which surprised at 3% - significantly higher than the market's 2.4% expectation. While this appeared positive at first glance, the growth was primarily driven by net exports. In contrast to Q1's import surge, Q2 saw a sharp slowdown in import activity, with net exports contributing nearly 5 percentage points. Meanwhile, personal consumption - the core driver of the U.S. economy - contributed just 0.98%, not only far below last year's levels but essentially returning to 2022 figures. Therefore, while the 3% headline number looks impressive, the underlying component breakdown reveals this GDP report wasn't particularly encouraging.
Data Source: Bloomberg
Next was the Fed's FOMC meeting. While markets had anticipated no rate cut this time, they didn't expect Powell to be so hawkish. In his wording, Powell gave no hints about future rate cut timing and continued emphasizing all decisions would be data-dependent. During the Q&A session, he remained cautious, stating it was too early to draw conclusions about tariff pass-through effects. The Fed's baseline scenario remains transitory inflation, but they need to prevent it from becoming persistent. More interestingly, two voting members openly dissented this time, and Powell was particularly firm when addressing Fed independence. Overall, Powell's data-dependent stance hasn't changed - markets had simply been wishfully thinking he would turn dovish for various reasons.
Meanwhile, last week also saw the release of key inflation and employment data. First was June PCE, which came in slightly above expectations year-over-year. Breaking it down, service inflation stabilized at last month's level, while goods inflation continued to expand significantly, particularly in home improvement, housing equipment, automobiles, and entertainment. Overall, this PCE report reinforced the narrative from CPI two weeks prior - tariff impacts on goods inflation are gradually emerging, but the current level remains within expectations of both the Fed and markets. Hence, market reaction to PCE was muted, with focus shifting to inflation data over the next two months.
However, Friday's nonfarm payrolls delivered an unexpected shock, triggering market declines. The data showed just 73,000 new jobs added in July - not only half of the previous month's figure but also well below market expectations of 110,000. More importantly, employment data for May and June underwent unprecedented downward revisions, with a combined reduction exceeding 250,000 jobs - nearly 90% lower than originally reported! This indicates U.S. employment wasn't as strong as previously thought, having shown signs of weakening two months ago. In response, Trump promptly dismissed the head of the Bureau of Labor Statistics, attributing it all to partisan politics. Meanwhile, Trump's tariff policies remained active - another 7-day extension was granted while tariffs were raised on several holdout countries including Canada, Brazil, and India as pressure tactics. Additionally, no official statement has been released regarding the third round of U.S.-China trade talks, suggesting limited achievements.
Setting aside political issues and conspiracy theories, connecting all last week's macro events paints the following picture of the U.S. economy: First, while full inflation hasn't arrived yet, there's ample evidence it's on the way; Second, employment isn't as robust as imagined - job growth is slowing though not yet turning negative; Third, tariff negotiations have hit a bottleneck, with remaining countries requiring extended negotiation periods and average tariff expectations rising. Consequently, while rate cut expectations have increased significantly, markets have also begun worrying about stagflation. Any surprises in upcoming inflation or employment data could trigger market turbulence.
On the bright side, big tech earnings last week were solid, with $微软(MSFT)$ , $Meta Platforms, Inc.(META)$, and $亚马逊(AMZN)$ all reporting stronger-than-expected financial performance and capital expenditures. However, post-earnings stock reactions diverged - $Meta Platforms, Inc.(META)$ and $微软(MSFT)$ surged after hours while Amazon dropped sharply. Specifically, the market is currently evaluating AI plays on two criteria: whether management demonstrates sufficient confidence and determination, and whether monetization capabilities are clearly visible. Microsoft and Meta provided clearer, more tangible evidence of AI potential - for instance, Microsoft's Azure grew 39% YoY, with massive capital expenditures backed by concrete contracts that lock in future revenue. In conclusion, while macro risks warrant caution currently, AI remains the market's most certain growth sector should any pullback opportunities emerge.
Data Source: https://www.theinformation.com/
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