On Thursday (July 31), the US stock market closed higher on the last trading day of July, with all three major indices posting gains. The S&P 500 index rose 0.8% to close at 6,218.57 points, a new all-time high; the Nasdaq Composite Index gained 1.3% to 20,478.32 points; and the Dow Jones Industrial Average edged up 0.2% to 45,128.65 points. Since the beginning of the month, the S&P 500 has increased by 3.2%, the Nasdaq by 4.1%, and the Dow by 1.5%. The market is finding a balance between strong earnings reports from tech stocks and Federal Reserve policy expectations.
Fed Signals Easing, Inflation Data Continues to Cool
On Wednesday, the Federal Reserve announced at its July meeting that it would keep the federal funds rate unchanged in the range of 4.25%-4.50%, in line with market expectations. The post-meeting statement removed the phrase "highly attentive to inflation risks," suggesting that if economic data supports, a rate cut cycle could begin in September.
Previously released June PCE price index showed a year-on-year increase of 2.3%, with core PCE up 2.6% year-on-year, both below expectations, further strengthening rate cut expectations. The CME FedWatch tool shows that traders now expect a 25 basis point rate cut in September with a probability of 78%, up 20 percentage points from a week ago.
Tech Giants' Earnings Diverge, AI Remains Growth Theme
After hours this week, several tech giants released their second-quarter earnings reports. Alphabet (Google's parent company) reported a 14% year-on-year revenue increase to $102.4 billion, with strong performance in its cloud business; Meta's second-quarter revenue grew 18%, with robust advertising business. Both companies' stocks rose after hours.
However, some tech stocks failed to maintain their strength. Although Tesla's revenue exceeded expectations, its gross margin fell to 17.1%, raising concerns about margin pressure. Additionally, Apple's earnings were overall stable, but growth in its services business slowed. Investors clearly favored Nvidia, considered a "core AI asset," whose stock rose 3.8% on Thursday, with its market capitalization surpassing the $5 trillion milestone.
Industry analysts note that AI infrastructure investment remains strong, with capital expenditures from cloud service providers like Microsoft and Amazon exceeding guidance, bringing continued momentum to the semiconductor and server supply chain. However, high valuations also increase volatility risks, and investors need to monitor whether corporate earnings can meet expectations.
Industry Rotation Accelerates, Small and Mid-Caps Rally
Notably, the market this week showed a "barbell strategy" characteristic: on one hand, tech giants fluctuated at high levels; on the other hand, the Russell 2000 index, benefiting from rate cut expectations, rose 2.4% for the week, significantly outperforming the S&P 500.
In terms of sectors, communication services, information technology, and consumer staples led gains, while the energy sector fell under pressure from oil prices. Fund flow data shows that approximately $4.5 billion flowed into US stock ETFs this week, with S&P 500 ETFs and technology-themed ETFs being the most favored.
Implications for Southeast Asian Investors
As the US stock market enters a new earnings season and rate cut game, Southeast Asian investors can participate in US stock allocation through over-the-counter trading or customized ETFs. Analysts suggest that while focusing on giant earnings, diversifying into small and mid-cap stocks and sectors benefiting from interest rate declines (such as REITs, utilities) can balance portfolio volatility.
Several US stock ETFs listed on the Singapore Exchange (SGX) are actively traded, including the SGX-S&P 500 ETF and Nasdaq 100 ETF, providing convenient access for investors in the ASEAN region. The net subscription volume of these ETFs increased this week, reflecting continued regional interest in US stocks.
Outlook
Looking ahead to August, market focus will shift to monthly inflation data and the Jackson Hole Global Central Bank Symposium. Analysts generally believe that if the soft landing expectation is consolidated, US stocks are likely to continue their upward trend with fluctuations. However, vigilance is needed against geopolitical risks and callback pressure from slowing profit growth.
