US Stock Weekly Report (7/28-8/3)

In the US stock market up to 8/3, the three major indices all declined compared to last weekend. The Dow Jones Industrial Average and the S&P 500 fell for the first time in 4 weeks, and the Nasdaq Composite Index fell for the first time in 2 weeks. On the evening of the 1st, rating giant Fitch lowered the rating of US bonds by 1 step from the top “triple A” to “double A plus,” concerns about upward pressure on long-term interest rates associated with the increase in government bonds by the US Treasury suddenly attracted attention, and risk-off movements took precedence. The 10-year bond yield, which is an indicator of long-term interest rates, temporarily reached a high level in the first half of the 4.1% range for the first time in about 9 months. Prior to the downgrade of US bonds by Fitch, the US June CPI (consumer price index) and June PCE (personal consumption expenditure) all fell below market expectations, the inflation slowdown trend became even clearer, and observations of the “soft landing theory” of the US economy spread. It seems that market sentiment completely changed due to the US debt downgrade shock. While the major sectors of the S&P 500 developed an overall depreciation compared to last weekend, the public service sector, which is sensitive to rising interest rates, dropped to the top with a price drop of ▲3.52% compared to the previous weekend, the IT sector fell ▲2.81 percent, the general consumer goods sector ▲2.64%, and the telecommunications sector and materials sector also fell by 2 percent or more. Individually, favorable financial results for the April-6 fiscal year are viewed as material, and Caterpillar (CAT) is 8.1% higher than last weekend. On the other hand, the Expedia Group (EXPE), whose financial results for the April-6 fiscal year fell below market expectations, fell 17.8% from the same period.

While the Dow Average in July was exciting with 13 consecutive increases since 1987, the monthly price increase range rose to 1151 dollars. The S&P 500 also followed an upward trend for 5 consecutive months until July. All 3 major indices have updated 52-week highs, and based on trends in the high price range, it is anticipated that there will be an area where it is easy to be pushed by profit-making sales. According to the summary of the fact set as of 7/28, while 51% of the major S&P 500 companies announced financial results for the April-6 fiscal year, corporate profit (EPS) of 80% or more exceeded market expectations, but the EPS forecast for the April-6 fiscal year was ▲7.3% compared to the same period last year, resulting in a decline in profit for 3 consecutive quarters, and it is expected to be a decline since 2020 2Q (▲31.6%). Also, based on the fact that the predicted PER for the next 12 months of the S&P 500 is 19.4 times above the 5-year average (18.6 times) and the 10-year average (17.4 times), it seems that there is a slight sense of overheating in the current US stock market. While there are also many views that the US stock market has entered a bullish market due to traction by stocks related to generative AI represented by ChatGPT, an artificial intelligence chatbot, it seems that the true value of generative AI-related stocks will be questioned due to full-scale earnings growth in generative AI-related stocks. Over this week, I would like to focus on the US July CPI (8/10), the US July PPI (8/11), and the US August University of Michigan Consumer Sentiment Index (8/11). It is expected that April-June financial results for major US companies such as Walt Disney (DIS) and Eli Lilly (LLY) will be announced.