The US stock market has continued to decline, with the Nasdaq 100 falling 3.59% overnight, marking the largest daily decline since December 2022, and the volatility index soaring. Mid cap stocks are relatively strong, with the S&P 500 falling 2.27%, but the weighted S&P only fell 1.17%. The semiconductor index SOXX fell 5.32%, pulling back nearly 15% from its high.
Is this the peak of the US stock market? Some market participants believe that miracles are still rare, and the breakthrough of GPT3.5 is the result of decades of accumulation. The probability of another index breakthrough in 2 years is too small. So the market needs to be prepared, as the development of AI in the next few years may only see breakthroughs in quantity, not in quality. It is more reasonable to layout the AI sector under this premise.
The US Markit Manufacturing PMI for July recorded 49.5, a seven month low, sparking concerns in the market about an excessive slowdown in US economic growth. Former third in command of the Federal Reserve, Dudley, changed his stance to support a rate cut in July: the Fed needs to act now. The bond market further digested the expectation of accelerated interest rate cuts, with the two-year US Treasury yield, which is more sensitive to monetary policy, falling 8.1 basis points to 4.41%. This also means that the market's bets on a rate cut in July have increased, while bets on a rate cut in September have exceeded 100%, which means a 25 basis point rate cut in September is now a certainty for the market.
However, the yield of the benchmark 10-year treasury bond bond rose 2.2 basis points to 4.27% overnight. After briefly breaking through the 4.2% mark, the 10-year US Treasury bond has once again approached the 4.30% line. To some extent, it seems difficult to define signs of a recession in the US economy.
In fact, it is difficult for us to find macro reasons for the decline in the US stock market. The rise of the US stock market since the beginning of this year is actually showing signs of desensitization to macro factors. Against the backdrop of stable US bond interest rates, the stock market has almost completely ignored the forces from the "denominator end" and turned to the numerator end - the direction of focusing on industry trends. Nevertheless, the Nasdaq has still risen by over 15% this year, while the Dow Jones Industrial Average is only 5.7%. Therefore, it may be more honest to seek the reasons and context for the adjustment of the US stock market from the perspective of market trading structure and the industry itself.
The US stock market has continued to decline, with the Nasdaq 100 falling 3.59% overnight, marking the largest daily decline since December 2022, and the volatility index soaring. Mid cap stocks are relatively strong, such as the S&P 500 falling 2.27%, but the weighted S&P only fell 1.17%. The semiconductor index SOXX fell 5.32%, pulling back nearly 15% from its high.
Is this the peak of the US stock market? The main concern of the US stock market now is whether the growth premium of AI stimulated large cap stocks can be absorbed by the landing of AI applications. Assuming that ChatGPT 5 at the beginning of next year does not have a revolutionary breakthrough, based on the current level of big models and only on the premise of improving AI response speed, can these applications support a $10 trillion consumer market? Some market participants believe that miracles are still rare, and the breakthrough of GPT3.5 is the result of decades of accumulation. The probability of another index breakthrough in 2 years is too small. So the market needs to be prepared, as the development of AI in the next few years may only see breakthroughs in quantity, not in quality. It is more reasonable to layout the AI sector under this premise.
The US Markit Manufacturing PMI for July recorded 49.5, a seven month low, sparking concerns in the market about an excessive slowdown in US economic growth. Former third in command of the Federal Reserve, Dudley, changed his stance to support a rate cut in July: the Fed needs to act now. History has shown that the current cooling of the labor market often leads to a faster decline, and delaying interest rate cuts increases the risk of recession. The bond market further digested the expectation of accelerated interest rate cuts, with the two-year US Treasury yield, which is more sensitive to monetary policy, falling 8.1 basis points to 4.41%. This also means that the market's bets on a rate cut in July have increased, while bets on a rate cut in September have exceeded 100%, which means a 25 basis point rate cut in September is now a certainty for the market.
However, the yield of the benchmark 10-year treasury bond bond rose 2.2 basis points to 4.27% overnight. After briefly breaking through the 4.2% mark, the 10-year US Treasury bond has once again approached the 4.30% line. To some extent, it seems difficult to define signs of a recession in the US economy. Judging from the trend of two-year and 10-year treasury bond, it seems that the possibility of upside down disappearance is greater. On the other hand, if the interest rate curve of US treasury bond bonds tends to normalize gradually, it seems that the trade on US recession has ebbed. The latest GDPNow data released yesterday also showed that the growth rate of the US economy in the second quarter is expected to be around 2.6%, which is a significant increase compared to the lowest value of 1.5% at the beginning of this month.
In fact, it is difficult for us to find macro reasons for the decline in the US stock market. The rise of the US stock market since the beginning of this year is actually showing signs of desensitization to macro factors. Specifically, the market did not see interest rate cuts as expected, but the US stock market continued to rise driven by the technology sector. In this process, the trend of the 10-year treasury bond bonds of the United States is also relatively stable, and it seems that there is not much prediction and impact on other asset prices. Since the beginning of this year, the 10-year US Treasury bond interest rate has only had an impact on the stock market in the early second quarter. At that time, due to doubts about interest rate cuts, the 10-year US Treasury bond rate once broke through 4.5% and approached the level of 4.8%, which put short-term pressure on the stock market. But with the gradual stabilization of US bond interest rates, the stock market has almost completely ignored the forces from the "denominator end" and turned to the numerator end - the direction of focusing on industry trends. From this perspective, the current adjustment of the US stock market is mainly driven by the AI sector and the Nasdaq. Even so, the Nasdaq has still risen more than 15% this year, while the Dow Jones Industrial Average is only 5.7%. Therefore, it may be more honest to seek the reasons and context for the adjustment of the US stock market from the perspective of market trading structure and the industry itself.