Huaxi Research: Federal Reserve Chairman's speech strengthens market expectations for a shift in monetary policy

According to the Wisdom Finance APP, Huaxi Research released a research report stating that Federal Reserve Chairman Powell's speech indicates that monetary policy is likely to shift, and actions will be taken to improve the labor market further weakening. The potential shift in the monetary market by the Federal Reserve indirectly indicates certain underlying pressure on the U.S. economy. Due to the still high valuation levels of U.S. stocks and market expectations of the U.S. nearing a rate-cutting cycle, in the past twenty years, the Federal Reserve's rate-cutting cycles have often been accompanied by periods of economic weakness or significant fluctuations in U.S. stocks. It is expected that the U.S. stock market will continue to experience volatility in the near future.

After experiencing a rapid pullback in the early stages, the U.S. stock market continued its rebound trend this week, but the rebound this week was smaller than last week, and there was increased volatility on some trading days during the week. This week, Federal Reserve Chairman Powell's speech indicated that monetary policy is likely to shift, and actions will be taken to improve the labor market further weakening. The potential shift in the monetary market by the Federal Reserve indirectly indicates certain underlying pressure on the U.S. economy. Currently, the P/E ratio of the Philadelphia Semiconductor Index is 52.5, indicating that the valuation is still relatively high. This week, the S&P 500 Shiller P/E ratio further increased to 36.34, still significantly higher than historical averages and medians. Due to the high valuation levels of U.S. stocks and market expectations of the U.S. nearing a rate-cutting cycle, it is expected that the U.S. stock market will continue to experience volatility in the near future.

Due to the overall high valuation levels of U.S. stocks, some key shareholders of important technology companies have started to reduce their holdings, and it is expected that some large tech giants in the U.S. stock market will continue to experience pullbacks in the near future. With both economic weakness and potential pressures in the financial sector in the U.S., there will also be some important individual stocks in sectors such as consumer goods, finance, biotechnology, and industrial sectors that are likely to experience pullbacks. Due to potential impacts from fundamentals and news, there will be significant adjustments in individual stocks in different growth and value industries in the U.S. stock market.

Following the previous significant pullbacks, most European markets continued their rebound this week. Considering that the European economy is still relatively weak and the valuation advantage of European markets is not significant at the moment, it is expected that some important market indices in Europe will continue to experience further volatility in the near future; European key market indices such as STOXX50, STOXX600, FTSE 100, CAC40, DAX, and FTSE MIB that have not experienced sufficient pullbacks earlier are still likely to experience volatility. Due to the interconnected impact of volatility in developed markets, it is expected that the S&P/TSX in Canada and the S&P/ASX 200 in Australia will continue to experience some fluctuations. After experiencing a significant pullback in the short term, the Nikkei 225 index continued its rebound from last week this week, but the rebound was noticeably smaller.

In addition, the P/E ratio of the Nikkei 225 index is 21.4, indicating a relatively high valuation range. Considering the high valuation level of the Nikkei 225 index, Japan's monetary policy is in a tightening cycle, coupled with the current downward trend in the Japanese economy, and the inherent contradictions between boosting the economy, stabilizing the exchange rate, and stabilizing the stock market, it is expected that the Nikkei 225 index will continue to experience further pullbacks in the near future Due to the relatively high valuation levels of both value and growth stocks in Japan, it is expected that there may be corrections in most growth and value industries in the Japanese market.

Due to the interconnection with markets such as Europe and the United States, it is anticipated that emerging market indices such as Mexico's MXX, IPSA in Santiago, Chile, India's SENSEX30, the Straits Times Index in Singapore, and the Comprehensive Index in South Korea, which have not fully corrected in the previous period, are still prone to volatility in the near future.

This week, different broad-based indices in the Hong Kong stock market showed mixed movements. Due to the combined effects of economic cycles, liquidity, and the fundamental factors of key industries, the Hong Kong stock market has not yet entered a bull market phase; the overall market recovery in Hong Kong still requires a relatively complex process. For the information technology and non-essential consumer sectors in the Hong Kong stock market, it is still advisable to avoid chasing high valuations. If there is a need to allocate, it is recommended to look for opportunities to gradually accumulate in a range of volatile fluctuations. In addition, the valuation levels of some assets in the Hang Seng financial and healthcare sectors are relatively low, with significant declines in the previous period, presenting opportunities for gradual accumulation during pullbacks and fluctuations in the near future.

Performance of the U.S. stock market for the week: All three major U.S. indices rebounded this week, with the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average rising by 1.45%, 1.4%, and 1.27% respectively.

Performance of the Hong Kong stock market for the week: The Hang Seng Index and the Hang Seng China Enterprises Index both rose this week by 1.04% and 0.93% respectively, while the Hang Seng Hong Kong-Listed Chinese Companies Index fell by 1.14%. The Hang Seng Tech Index rose by 0.28% this week.

Key economic data overseas: In July 2024, the year-on-year growth rate of the Eurozone's Consumer Price Index (CPI) was 2.6%, higher than the previous value of 2.5%.

Risk Warning: Unexpected monetary policy changes by the Federal Reserve; economic growth falling short of expectations; escalation of global geopolitical risks; occurrence of global black swan events