Gold and chip stocks are volatile, how will the three major factors affect the US stock market next week?
Investors sold off chip stocks heavily in late trading this week, worried that major technology companies will continue to invest huge amounts of capital in the field of artificial intelligence. The market is waiting for the release of a new round of financial reports from technology giants. At the same time, crude oil prices have soared, pushing up U.S. bond yields, and the market is betting that the Federal Reserve will tighten monetary policy again this year. Next week, the Federal Reserve decision, technology stock earnings reports and geopolitical factors will continue to be potential risks for market volatility. Expectations for the Federal Reserve to raise interest rates have increased. In the past week, U.S. economic data has been relatively light, with the core focus being the S&P Global Purchasing Managers Index (PMI) and the number of initial jobless claims for the week.
Investors sold off chip stocks heavily in late trading this week, worried that major technology companies will continue to invest huge amounts of capital in the field of artificial intelligence. The market is waiting for the release of a new round of financial reports from technology giants. At the same time, crude oil prices have soared, pushing up U.S. bond yields, and the market is betting that the Federal Reserve will tighten monetary policy again this year. Next week, the Federal Reserve decision, technology stock earnings reports and geopolitical factors will continue to be potential risks for market volatility. Fed rate hike expectations rise U.S. economic data has been relatively light in the past week, with the core focus being the S&P Global Purchasing Managers Index (PMI) and the number of initial jobless claims for the week. The U.S. economic climate improved in July, and companies accelerated hiring. The services PMI rose to 53.6 from 51.2 the previous month, hitting an eight-month high, while the manufacturing PMI fell slightly from 53.9 to 53.8, lower than market expectations of 54.3. The job market remains stable. The number of people applying for unemployment benefits for the first time decreased by 22,000 from last week to 187,000, a new low since 1969 and significantly lower than market expectations of 212,000. The number of people continuing to apply for unemployment benefits decreased by 2,000 from last week to 1.796 million after seasonally adjustment. The Atlanta Fed's GDPNow model's real-time forecast for second-quarter GDP remains unchanged at 1.7%. Bob Schwartz, a senior economist at Oxford Economics, said in an interview with China Business News that the extremely low initial claims data intuitively reflects the low layoff rate of U.S. companies and the resilience of the labor market at the bottom. "In an environment of weak labor supply, new non-agricultural employment positions still maintain a steady growth rate, which means that the number of people continuing to claim unemployment benefits is likely to fall further in the next few weeks." Full-term U.S. bond yields rose across the board. The core drivers were the escalation of the U.S.-Iran conflict and the sharp rise in crude oil. Comparing last Friday's closing: the 2-year U.S. bond, which is closely related to interest rate expectations, rose by about 10 basis points to 4.311%, a new high since December 2024. The benchmark 10-year U.S. bond surged 14 basis points to 4.68%. Bank of Montreal said in a research report sent to China Business News that the rebound in oil prices coupled with a new round of tariff increases will significantly increase the difficulty of regulation by central banks around the world. These two negative factors will continue to suppress the market before next week's Federal Reserve interest rate meeting. The CME FedWatch tool shows that market bets on the probability that the Fed will keep its benchmark interest rate unchanged next week have dropped to 62% from 87% a week ago. The probability of raising interest rates by 25 basis points has soared from 13% to 38%, and the market has advanced the interest rate hike node to September. Schwartz told China Business News that energy prices have surged again, which means there are upward risks to short-term inflation forecasts. This environment will force the Federal Reserve to become more hawkish in its overall stance, but it will not raise interest rates at its July interest rate meeting, especially given the current volatile geopolitical situation in the Middle East. The continued tightening of financial market conditions can itself replace part of the interest rate hike policy and play a role in curbing inflation. U.S. stocks fell across the board last week, with both the Nasdaq and S&P 500 falling for the second consecutive week. Dow Jones market statistics show that the energy industry among the 11 major S&P sectors rose 3.8% in a single week: geopolitical turmoil in the Middle East pushed up international oil prices, and the sectors strengthened across the board. The public utilities sector rose 2.5%; the industrial, real estate, and raw material sectors all rose by more than 1%, and the medical, technology, and financial sectors closed slightly higher. Three sectors closed down this week, with the leading decliners concentrated in the technology consumption track: the communication services sector suffered the largest decline, falling 6.2% in a single week; the consumer discretionary sector fell 6.1%; and the consumer staples sector fell 1.4%. Alphabet, Google’s parent company, fell 7.8% in a single week. The European Commission fined Google 890 million euros in accordance with the Digital Market Law. The financial report showed that free cash flow turned negative. Tesla plunged 17% in a single week, the highest weekly decline among all S&P 500 stocks. The company's second-quarter adjusted earnings per share fell more than market expectations. Charu Chanana, chief investment strategist at Saxo Bank, said: "U.S. giant technology companies will face more stringent scrutiny. They are investors of large capital expenditures; chip manufacturers, storage suppliers, and computing infrastructure companies are upstream in the AI investment chain and can get orders in advance and cash in revenue."
Charles Schwab wrote in a market commentary that the core trigger for the weakness in the technology sector this week was the selling pressure after Google parent company Alphabet released its financial report, which led to a sharp increase in capital expenditure guidance and completely reversed market optimism. Although the demand for computing power is still strong, the market has strong concerns about the potential risks caused by the endless expansion of ultra-large-scale cloud vendors. Putting aside the geopolitical conflict in Iran, next week will see the release of intensive and heavy data: the Federal Reserve’s interest rate meeting on the 27th and 28th; the Federal Reserve’s core inflation observation indicator, the U.S. Personal Consumption Expenditure Price Index (PCE), will be released; four of the seven technology giants will disclose financial reports, namely Amazon, Apple, Meta, and Microsoft. Analysts generally expect Amazon, Meta, and Microsoft to all raise their capital expenditure guidance. Referring to the market's negative feedback on Google's financial report this week, these four financial reports have significant downside risks. Charles Schwab believes that as the S&P 500 index falls below the 50-day moving average, the technical form is bearish, and there are many uncertainties, market volatility may increase significantly. Therefore, it is recommended that investors pay close attention to the trend of oil prices and U.S. bond yields.
Charles Schwab wrote in a market commentary that the core trigger for the weakness in the technology sector this week was the selling pressure after Google parent company Alphabet released its financial report, which led to a sharp increase in capital expenditure guidance and completely reversed market optimism. Although the demand for computing power is still strong, the market has strong concerns about the potential risks caused by the endless expansion of ultra-large-scale cloud vendors. Putting aside the geopolitical conflict in Iran, next week will see the release of intensive and heavy data: the Federal Reserve’s interest rate meeting on the 27th and 28th; the Federal Reserve’s core inflation observation indicator, the U.S. Personal Consumption Expenditure Price Index (PCE), will be released; four of the seven technology giants will disclose financial reports, namely Amazon, Apple, Meta, and Microsoft. Analysts generally expect Amazon, Meta, and Microsoft to all raise their capital expenditure guidance. Referring to the market's negative feedback on Google's financial report this week, these four financial reports have significant downside risks. Charles Schwab believes that as the S&P 500 index falls below the 50-day moving average, the technical form is bearish, and there are many uncertainties, market volatility may increase significantly. Therefore, it is recommended that investors pay close attention to the trend of oil prices and U.S. bond yields.