Last week(8/7-8/11), global stock markets demonstrated divergent performance. In the US, the Dow Jones Industrial Average rose by 0.6%, while the S&P 500 Index declined by 0.3%, and the Nasdaq 100 Index fell by 1.6%. Among Asian stock markets, the Hong Kong Hang Seng Index recorded the poorest performance with a decline of 2.4%. The European STOXX 600 Index remained flat.
【Source: MacroMicro Date2023/8/7-2023/8/11】
【Source: MacroMicro Date2023/1/1-2023/8/11】
On August 10th, the US Bureau of Labor Statistics released data showing that the year-on-year CPI growth rate in July rebounded from 3.0% to 3.2%, but fell short of expectations at 3.3%. The core CPI, excluding volatile food and energy prices, decreased from 4.8% last month to 4.7%, aligning with expectations.
【Source：MacroMicro】
The consecutive decline in core CPI indicates a sustained cooling of inflation in the United States, reducing the likelihood of another interest rate hike by the Federal Reserve this year. After the data was announced, US stocks opened higher, but during trading hours, Federal Reserve officials poured cold water on the CPI, stating that the Fed still has more work to do to achieve its inflation target. As a result, US stocks gave back some of their gains and barely closed higher.
Optimistic sentiment continued to be undermined. On August 11th, data showed that the year-on-year PPI growth rate in July accelerated from the previously revised 0.1% to 0.8%, surpassing expectations of 0.7%. The core PPI rose by 2.4%, higher than the expected 2.3%.
PPI data indicates persistent inflation pressure. Following the data release, the market's probability of no interest rate hike by the Federal Reserve in September slightly decreased, currently standing at 88.5%.
【Source：CME】
Mitrade Analyst：
The rebound in energy and food prices is highly likely to drive future inflation upward. Additionally, the rising long-term inflation expectations will make inflation more prone to rise than to fall, making it difficult to change the "high for longer" interest rates in the United States. We maintain our view that there will be no interest rate hike in September, but the possibility of another rate increase in the fourth quarter remains unchanged.
In August, technology stocks performed poorly while energy stocks saw a significant increase, indicating some sector rotation.
The S&P Energy Index rose by 2.6% in August and has gained 12.2% in the second half of the year, outperforming the overall market. Occidental Petroleum (OXY) has risen by 12.0% since the end of June, while Exxon Mobil (XOM) increased by 4.2%.
【Source：MacroMicro】
Rising oil prices are an important factor driving the surge in energy stocks. International oil prices have been rising for seven consecutive weeks, with WTI crude futures closing at $84.40 per barrel last Wednesday, reaching the highest level this year. Brent crude closed at $87.55 per barrel, reaching a new high since January.
The factors driving the increase in oil prices include Saudi Arabia and Russia announcing an extension of production cuts, which raised concerns about crude oil supply, as well as improving macroeconomic prospects in the United States, with the rate hike process nearing its end.
UBS remains optimistic about the future of oil prices, expecting Brent crude to reach $90 per barrel by the end of 2023. With the rise in oil prices, there will be greater development opportunities for energy stocks.
Mitrade Analyst：
In the first half of this year, technology stocks were overbought, while energy stocks were oversold, leading to high valuation for technology stocks and low valuation for energy stocks. In order to hedge risks, investors are willing to buy some undervalued energy stocks to balance their portfolios. We believe that it is still early to switch investment styles at this time, but given the current prices, energy stocks are worth investing in and investors can make appropriate allocations.
Last week, the Nasdaq 100 index fell by 1.6%, and since August, it has declined by 4.7%.
The Nasdaq 100 index is heavily weighted towards technology stocks, with FAAMG and other giants in the tech industry accounting for over 40% of the index. However, recent adjustments made by tech giants have dragged down the index. Apple has declined by 9.5% since August, Nvidia has fallen by 12.6%, and Meta (formerly Facebook) has dropped by 5.3%.
【Source：MacroMicro】
The tech sector's growth this year has been primarily driven by the AI concept, but as the hype around AI cools down, there is divergence in the market regarding the future prospects of tech stocks. Morgan Stanley warned in a recent report that the AI concept stocks are nearing a bubble peak, indicating that this round of stock market gains may be reaching its end. However, Goldman Sachs believes that the valuation of AI-related companies does not yet constitute a bubble.
According to Goldman Sachs' estimates, AI will bring about a 0.5% annual profit boost to US-listed companies, and the S&P 500 index still has room for a 9% increase. The Nasdaq 100 index, which has a larger proportion of tech stocks, is expected to rise by over 10%.
Mitrade Analyst：
As we mentioned before, it is normal for technology stocks to undergo adjustments given the current high interest rates, as their profits cannot support their current valuations. The future performance of technology stocks depends on two factors: expectations of a rate cut by the Federal Reserve and earnings forecasts. In the short term, with investor risk appetite cooling off, it is expected that the Nasdaq 100 will trade sideways and experience volatility.
