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Capital sentiment remained stable, and the panic index VIX hit a new low for the year.
Last week, the US stock market went out of the sharply differentiated market, and the Dow, which is dominated by cyclical sectors, fell sharply. Large technology stocks led the Nasdaq and the S&P 500 index to continue their previous gains.
The prospect of the Federal Reserve's interest rate cut was hit, which once triggered a sharp intraday plunge. Nvidia's strong performance guidance led the market to withstand the volatility of risk appetite. As the fear index VIX, which measures market volatility, hits a new year's low, the historically high stock index will continue to face a fierce game about monetary policy and the trend of technology stocks.
The expected regenerative variable of the Federal Reserve's interest rate cut
It is different from the statement of Fed Chairman Powell at the press conference earlier this month. Judging from the minutes of the meeting released last week, the Federal Open Market Committee (FOMC) can be described as an "undercurrent surge". It is worth mentioning that many officials within the Federal Reserve mentioned the possibility of raising interest rates.
Bob Schwartz, senior economist of Oxford Economic Research Institute, said in an interview with China Business News that the statement of neutral interest rate in the minutes is worth paying attention and may be higher than the previous expectation.
Several US economic data rebounded more than expected, which also made it impossible to cut interest rates in the short term. The newly released S&P global comprehensive purchasing managers' index (PMI) rose to a new 25 month high in May. In addition to the stable growth of the manufacturing industry above the boom and bust line, the service industry also hit a new two-year high. On the other hand, with the rising cost of inputs, future commodity inflation may return.
Affected by this, US bond yields continued to rise. The two-year US bond closely related to interest rate expectations reported 4.95%, the highest level since May 1. The benchmark 10 US bond rose to 4.47%, up 5 basis points weekly.
According to the FedWatch Tool of the Chicago Mercantile Exchange, the market believes that the possibility of the Federal Reserve meeting in September to cut interest rates is 49.4%, down from 54.8% a week ago. The probability of cutting interest rates twice this year is less than 30%, compared with about 70% last week. Goldman Sachs earlier postponed the first interest rate cut by the Federal Reserve from July to September.
Thomas Simons, an economist at Jefferies, said: "For a long time, we have been expecting that the labor market will be weak due to the decline of consumption caused by inflation, which will urge enterprises to lay off workers in order to pursue lower costs and ensure profits. Now we are very clear that this will not happen at all." He wrote in a report: "Enterprises have done a good job in maintaining profits by reducing working hours and part-time jobs to reduce labor costs rather than reducing the number of employees. We expect that this will continue to be the theme of the future, because enterprises realize that skilled labor will become increasingly scarce as time goes by."
Schwartz told China Business and Economics that the US economy improved after a slow start in the first quarter, "The prospect of consumer confidence is mixed, because inflation expectations are still high. In general, the probability of the Federal Reserve cutting interest rates this year is very high, which requires more data in the future."
Can technology stocks continue to turn the tide
US stocks were mixed last week, signs of faster than expected economic activity and the minutes of the Federal Reserve meeting prompted investors to withdraw their bets on interest rate cuts. Cyclical sectors were sold off, with the energy and real estate sectors down more than 3%, and the financial sector down 2.0%. At the same time, the non essential consumer goods, healthcare and utilities sectors fell more than 1%.
Driven by Nvidia's bright financial report, the technology and communication services sector offset the decline of other sectors. The profit and sales of this AI chip giant in the first fiscal quarter were stronger than expected, and the guidance for this fiscal quarter also grew strongly, driving the market value to increase by more than $150 billion, and the total market value even exceeded the market value of the German stock market.
Rob Haworth, senior investment strategist of wealth management at United Bank of America, believes that as the US stock market stabilizes near the end of the day, the market believes that the situation may not be as bad as expected, "The Federal Reserve should have room to cut interest rates, the economy will be better, and we will not collapse completely."
Anthony Sagrimbene, an analyst at Ameriprise Financial, said that the market is very sensitive to the economic data challenging the "blonde girl" scenario, so Nvidia's performance is very critical. He said: "Investors overreacted a bit, which tells you the sensitivity of the market to economic data, which challenges the statement that the Federal Reserve will cut interest rates this year. However, investors see from the performance of this chip manufacturer that AI theme has a foothold."
From the perspective of capital flow, investors chose to continue buying last week. According to the data provided by LSEG to China Business News, under the leadership of large cap technology stocks, the net inflow of US equity funds in the past week reached US $9.9 billion, up sharply from US $4.1 billion in the previous week.
Sagrebini believes that investors are trying to determine whether the current level of the S&P 500 index at around 5300 points is a potential upper limit or a support area for the index to climb. In his view, the index may rise further, partly because of the positive profitability of American companies, especially technology stocks with greater weight.
In its market outlook, Credit Suisse wrote that NVIDIA has released its highly anticipated earnings report, coupled with the capital expenditure guidelines of large technology companies, and the optimistic AI theme seems to remain intact. At least for now, the inflection point of performance growth has not yet appeared. However, the minutes of the Federal Reserve meeting and the S&P PMI strengthened the expectation that interest rates would remain high for a long time. Considering the market growth in the past five weeks and the forward P/E ratio close to 21 times, far higher than the 10-year average of 17.7 times, the current pricing is nearly perfect.
The agency believes that the upcoming personal consumption expenditure (PCE) price index in April will become a short-term catalyst for market trends. While paying attention to the trend of inflation indicators and US bond yields, it is recommended that investors remain cautious.
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