To The Moon

I. Performance of Global Equity Indices (in US dollars)

Data source: Bloomberg, compiled by Tiger Brokers

II. Key Market Themes

i. Market Recap: Japan and South Korea plummet, US stocks plunge, panic sweeps the globe, what happened to the market?

• Recently, frequent black swan events worldwide have triggered severe fluctuations in the global capital markets. Among them, US tech stocks, Japanese, and South Korean stocks in the Asia-Pacific region were hit the hardest, leading the global decline. On August 5th, the Nikkei 225 index plummeted more than 12% in a single day, setting a record for the largest single-day drop in history.

• Firstly, the Bank of Japan raised interest rates again and unexpectedly tightened monetary policy, causing a global repatriation of yen carry traders, putting significant pressure on US stocks, especially tech shares; then, the US July manufacturing PMI came in much lower than expected at only 46.8; finally, the US non-farm job gains and unemployment rate both missed market expectations significantly.

• Moreover, the US earnings season also saw numerous disappointments. Big tech stocks like Microsoft $微软(MSFT)$ and Amazon $亚马逊(AMZN)$ faced criticism for excessive capital expenditure; Intel $英特尔(INTC)$ suffered a comprehensive collapse in revenue, profits, and guidance, with the market responding with a 30% drop! At the same time, geopolitical conflicts in the Middle East escalated once again. In an instant, a confluence of unfavorable factors led to a full-blown market panic!

ii. Market Outlook: Is the US headed for a recession? How long will the panic last?!

• Last week, we analyzed three future scenarios. If the economy achieves a soft landing and the Fed can predict it in advance, the market can make steady progress. On the contrary, if the Fed is late to act, the market will be fraught with anxiety and fear. Clearly, the market is currently pricing in the latter. So, is the US economy really going into a recession?

• It must be acknowledged that the July employment data was universally weak. Non-farm jobs added only 114,000, two-thirds of the expected number; the unemployment rate rose to 4.3%, taking off abruptly. However, historically, July is a period of extreme weather in the US, and the number of people unable to work due to weather in July is significantly higher than in other months.

• More importantly, 70% of the rise in the unemployment rate was due to temporary layoffs, not permanent layoffs caused by a recession. Such temporary conditions usually reverse within a few months. Moreover, the current labor demand remains stable, with no significant decline, and the overall level is comparable to that of 2019.

Data source: Goldman Sachs Global Investment Research, compiled by Tiger Brokers

• Coincidentally, Fed officials have also recently indicated that "the July employment report represents just a number, and the Fed's responsibility is not to react to one month's employment data." According to statistics, if the S&P 500 falls by 10% and no recession follows, the next six months could see decent returns.

• In summary, we believe there is insufficient evidence to confirm that the US is about to enter a recession. However, the deleveraging impact caused by the repatriation of yen is a tangible reality, and the Middle East geopolitical situation remains an unknown. While market panic may subside somewhat, the clouds of uncertainty still loom overhead.

Data source: Goldman Sachs Global Investment Research, compiled by Tiger Brokers

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