I. Performance and Valuation of Global Equity Indices
Data Sources: Bloomberg, Tiger Asset Management
Key Highlights
◼ Last week, global capital markets did not experience any significant pullback; instead, market sentiment continued to remain high. The U.S. Nasdaq 100, S&P 500, and Russell 2000 indices all saw weekly gains exceeding 2%. In comparison, while the performance of the Greater China region's A-shares and Hong Kong stocks lagged somewhat, they were still relatively strong, with the Shanghai Composite Index, CSI 300, Hang Seng Index, and Hang Seng Tech Index all registering gains of over 1%.
◼ Recently, U.S. July inflation data was released, with core CPI rising 0.32% month-on-month and 3.06% year-on-year, broadly in line with market expectations. More importantly, the main driver of this CPI increase was services inflation, while goods inflation, impacted by tariffs, remained relatively subdued. This has alleviated market concerns about stagflation. Additionally, both the Services PMI and initial jobless claims came in weaker than expected, indicating that the economy is slowing down. As a result, both inflation and employment data now seem to support expectations for a rate cut in September. Although there is still considerable internal division within the Federal Reserve, there is sufficient time and room for the Fed to respond, as several key economic data points will be released before the September FOMC meeting.
◼ This week, key events to watch include the U.S. ISM Services PMI, progress in U.S. tariff negotiations, and upcoming U.S. Treasury auctions.
II. Key Market Themes
U.S. Stocks: The Music Plays On
Last week, the U.S. stock market did not extend the panic triggered by the previous employment data. Instead, it was stronger than expected, kicking off a week-long rebound. Over the course of five trading days, the S&P 500 nearly regained all its previous losses, and the Nasdaq reached a new historical high on Friday. Overall, the market currently revolves around two main narratives: one is macroeconomic, and the other is AI. When there are no major changes in the macro outlook, AI takes center stage; however, if unexpected macroeconomic developments occur, the market will reprice accordingly. At present, it is clearly the former.
On the macro front, the most significant event was the July CPI report. In terms of the numbers, core CPI increased by 0.32% month-on-month, which was in line with expectations. Year-on-year, it rose by 3.06%, slightly above the market expectation of 3.0%, but the difference was small and within an acceptable range. In terms of components, services were the main driver of this inflation, with core services rising 0.36% month-on-month, particularly in housing, transportation, and healthcare. In contrast, the goods sector, which had raised concerns in the market, remained relatively moderate, with no widespread increases. The month-on-month rise in core goods was only 0.2%, roughly the same as last month. Previously, the market generally expected tariff impacts to gradually manifest starting in July, but the outcome was relatively tame—there was neither a runaway spike nor a catastrophic surprise. As a result, market risk-on sentiment was reignited, with all three major U.S. indices rising sharply on the day.
Data Source: Bloomberg
In addition to the CPI, several other economic data points were released last week. The Services PMI came in at 50.1, though lower than the previous value and below expectations, it remained above the expansion-contraction threshold, meaning it did not yet trigger recession fears. Similarly, initial jobless claims stood at 226,000, slightly higher than expected, marking an increase for two consecutive weeks, further confirming the weakening of the labor market. Overall, we believe the current macro narrative is quite favorable: moderate inflation and weakening employment both provide ample reasons and space for a rate cut. At present, the market has priced in a 90%+ probability of a rate cut in September, with some even suggesting the Fed should directly cut by 50 basis points.
At the same time, the Federal Reserve is also in a state of flux. President Trump appointed Stephen Miller as the temporary Fed board member, a staunch Trump supporter. Miller has publicly stated multiple times that raising tariffs would not lead to inflation, and he has also proposed increasing the Fed's oversight and giving the president the power to remove board members. This personnel move has been viewed as a favorable signal for a rate cut. However, there are still significant divisions within the Fed. Recently, Kansas City Fed President Esther George stated that the impact of tariffs on inflation is limited and should be used as a reason to maintain rates, not to cut them. Regardless, there is still one PCE, one nonfarm payrolls report, and one CPI before the September FOMC meeting. Each of these data points is critical and could potentially change the Fed’s stance.
On the tariff front, negotiations between the U.S. and India have collapsed, with President Trump announcing plans to impose an additional 25% tariff on India, making it the country with the highest tariffs globally. At the same time, Indian media reported that Prime Minister Modi will visit China at the end of the month to attend the SCO summit. However, despite these developments, the market did not show significant volatility. We believe the tariff blueprint is now largely clear, and the biggest unknown remains the U.S.-China trade relationship. Although the deadline has been extended by 90 days, it is still possible that the two sides will engage in prolonged negotiations to secure their respective interests, reminiscent of the back-and-forth in 2018. At that time, the market will likely reassess the impact of tariffs.
Beyond the macroeconomic front, last week’s main focus was on AI. First, the highly anticipated GPT-5 was finally released. Objectively speaking, while the text generation capabilities have only improved moderately, the reduction in model hallucinations and the practical application of agent technology, combined with a significant improvement in project-level delivery capabilities, are notable advancements. Additionally, Google also unveiled its latest world model, Genie3, which can generate dynamic worlds from text input. It’s easy to imagine the significant efficiency boosts this could bring to industries like gaming and advertising.
However, there have also been growing concerns about AI's impact on the labor market. Data shows a noticeable rise in youth unemployment in the U.S., and AI has yet to deliver a clear boost to labor productivity. Nonetheless, we maintain an optimistic and positive outlook. First, AI is a disruptive technological revolution, and even if it creates short-term economic challenges, it will not stop its development. Second, concerns about AI are not new. For instance, last year’s Scaling Law plateau caused $英伟达(NVDA)$ to retrace nearly 20%, but in hindsight, that was an opportunity. So, while we remain cautious of macro risks, we remain firmly bullish on the opportunities in AI.
Data Source: BofA
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