Last Week’s Macroeconomic Data and Market Response
Last week’s macroeconomic data provided broad support for equity markets. The U.S. June CPI further declined, hitting the lowest month-over-month rate since 2021. Following the data release, the Nasdaq and other equity markets saw a brief surge before retreating, with funds flowing into small-cap stocks such as those in the Russell 2000. There are two interpretations for this movement:
- The decline in CPI has accelerated concerns about an impending recession, prompting a flight to safety.
- Liquidity is beginning to overflow, making it difficult for high-market-cap stocks, like the Magnificent 7, to sustain their rally, leading funds to shift into small-cap stocks, which are on the liquidity fringe (e.g., small caps and cryptocurrencies).
From a macroeconomic perspective, the current environment favors equity markets. The market is increasingly expecting two or even three rate cuts by the Federal Reserve this year, which should continue to drive equity markets higher. The main indicators to watch are potential recession signals such as unemployment rates and consumer spending. We are gradually shifting towards a bullish outlook and will consider increasing our long positions after technical retracements to support levels.
Political Developments and Market Impact
Furthermore, the attack on Trump has essentially pre-announced the outcome of the U.S. presidential election. Trump’s support was already leading, and this incident has further increased his chances of winning. Trump and his party are strong supporters of the cryptocurrency industry and favor more accommodative monetary policies to support employment and the stock market. Following the incident, the cryptocurrency market surged, with Bitcoin gaining over 4% intraday. This suggests a significant potential upswing in U.S. stocks when markets open on Monday.
Upcoming Week: Macro Data and Events
This week is relatively light on macroeconomic data, with few important releases:
- July 15, 20:30 – New York Fed Manufacturing Index: Previous value: -6%, expected: -5.5%. If this data exceeds expectations, it will be positive for equity markets as it reduces potential recession risks. Currently, recession and rate cuts are equally important market trading themes.
- July 16, 00:00 – Powell’s Speech: Based on previous speeches, this one is also expected to have a minimal impact on the market. There might be short-term volatility, so it’s advisable to reduce high-leverage positions before the speech.
- July 16, 20:30 – U.S. Retail Sales Data: This is the most important data of the week, as it pertains to whether there are signs of a U.S. economic recession. Previous value: 0.1%, expected: -0.2%. If the data exceeds expectations, it may not favor rate cuts but will reduce potential recession risks, benefiting equity markets. Conversely, if the data falls short of expectations, traders betting on a recession are likely to gain the upper hand.
Market Strategy and Outlook
Overall, there are not many data points this week. From the perspective of the U.S. presidential election, we might be at the beginning of a new bull market. Trump’s potential return to office suggests further monetary easing and equity market gains, along with inflationary pressures. This period also presents a good opportunity to go long on gold, silver, and futures. We are optimistic about the upward opportunities for equity assets over the next two years.
As an X blogger @VV_watch aptly puts it: “There are many reasons to be bearish, but the cost of shorting is high.”
