Pre-market market trends
1. On August 21 (Friday), the futures of the three major US stock indexes rose sharply before the US stock market. As of press release, Dow futures were up 0.52%, S&P 500 futures were up 0.48%, and NASDAQ futures were up 0.74%.
2. As of press release, the German DAX index rose 0.20%, the British FTSE 100 index rose 0.20%, the French CAC40 index rose 0.15%, and the European Stoxx 50 index rose 0.31%.
3. As of press release, WTI crude oil fell 0.44% to $86.45 per barrel. Brent crude fell 0.38% to $93.42 per barrel.
Market news
The US Treasury wanted to spend money to save the US debt, and Goldman Sachs prescribed a “prescription”: cooling inflation is the core of breaking the game. Goldman Sachs strategist Friedrich Schappel pointed out in a report that if the underlying macroeconomic drivers are not changed, the impact of the expansion of debt buyback programs will prove to be “relatively short-lived.” Chappelle believes that although the US Treasury is doing its best to curb rising borrowing costs, cooling inflation is still the most compelling way to reduce bond yields. Although a series of recent fundamental news are encouraging, including retail sales data falling short of expectations, disappointing employment data, and the suppression of core inflation in July this year, there are still differences in market pricing. Chappelle wrote in the report: “We believe that continuing to accumulate moderate inflation data will increase people's confidence that the Fed will keep the interest rate benchmark unchanged and reverse risk bias. This is currently the clearest way to reduce yields.”
UBS raised its S&P 500 profit forecast and is optimistic that the bull market will continue. UBS raised its profit forecast and target points for the S&P 500 index on the grounds that corporate profit prospects have improved and the market's confidence in next year's economic growth continues to grow. The bank currently expects earnings of the S&P 500 index to be $350 per share in 2026 and $400 in 2027, up from the previous forecasts of $335 and $375, respectively, and corresponding growth rates of 25% and 14%, respectively. Meanwhile, the bank raised the target points of the S&P 500 index to 8,100 points in December 2026 and 8,400 points in June 2027. The bank said that the increase was mainly driven by earnings exceeding expectations in the semiconductor, technology hardware and energy sectors, but profit expectations in almost all market sectors have increased to varying degrees. UBS pointed out that the breadth of this round of market growth continues to expand, the second-quarter earnings season performance was extremely strong, and economic conditions in cyclical areas such as manufacturing activity and employment growth in the construction industry continued to improve.
Former Federal Reserve “Big Three”: The US stock bubble may burst before the end of next year. Former New York Federal Reserve Chairman Bill Dudley pointed out that US stock valuations are clearly already in a bubble zone. Once the AI investment cycle slows down, the profit, profit margin, and financing logic that currently supports the rise in the stock market may be reversed at the same time. He anticipates that this bubble may burst before the end of 2027. Dudley pointed out that several indicators have revealed the overvaluation of US stocks, but at the same time, he emphasized that overvaluation does not mean that the bubble will burst immediately. Bubbles can often continue to expand, as rising asset prices in turn stimulate investment and profit growth and reinforce the optimistic expectations of market participants. The risk is that this positive feedback may eventually reverse. The most critical turning point came from AI capital expenditure. Once the growth rate of AI capital expenditure declines, upstream “seller” companies will first be pressured: demand growth slows down, profit expectations fall, and profit margins may also shrink, ultimately forming a “double blow” to valuation and profits.
Did the US Treasury “buy debt and suppress interest rates” to hurt the dollar? Citi drastically lowered its three-month forecast to the US dollar, saying it is inappropriate to go long before the midterm elections. Citigroup's foreign exchange strategy team recently turned bearish on the short-term trend of the US dollar as the market gradually digests expectations that the Fed's position is becoming more moderate, as well as news that the US Treasury may step up treasury bond repurchases. Citi strategists led by Daniel Tobon lowered the US dollar index forecast for the next three months from 102.12 to 98.34 in a research report on Thursday. Citi has warned that the latest steps taken by US Treasury Secretary Scott Bessent to reduce long-term borrowing costs are likely to come at the cost of a weaker dollar. The strategist said, “The latest variable is that the US Treasury recently announced that it will double the scale of repurchases by November. This has added a new negative factor to the US dollar through two paths: first, it depresses US bond yields; second, it raises market concerns about financial suppression policies.”
Gold has been rising for three consecutive weeks, filling up the mood for a new round of bull market! As of press release, the spot price of gold rose 1.70% to about 4,597 US dollars/ounce. It once reached 4,600 US dollars/ounce during the day, and is expected to rise for three consecutive weeks. As far as the price curve of gold is concerned, it is receiving a “dual path benefit” structure triggered by the US government's repurchase of long-term US bonds of 10 years or more — the decline in risk-free yield earns the opportunity cost of holding, and when the yield is out of control, it earns a credit premium. As far as expectations of a new round of gold bullish markets are concerned, the real significant impact is to change the market's expectations about the policy response function of the Federal Reserve and the US government: once investors believe that the administration will stop long-term financing costs from getting out of control with larger dollar investments, lower real interest rates, or more active debt term management, the gold price distribution will show a clear upward bias, driven by the continued depreciation of the US dollar and the decline in risk-free returns for a period of 10 years and longer.
Individual stock news
The majority of US technology stocks were higher. Optical Communications stocks generally rose before the US stock market on Friday. As of press release, Coherent (COHR.US), Lumentum (LITE.US), Astera Labs (ALAB.US), and Nokia (NOK.US) are up more than 2%, Credo Technology (CRDO.US) and Corning (GLW.US) are up nearly 2%, and MRVL.US (MRVL.US) is up more than 1%. The “Big Seven US stocks” rose across the board, with gains of less than 2%; memory chip stocks also rose; SK Hynix (SKHY.US) rose more than 2%, while Micron Technology (MU.US), Seagate (STX.US), and Western Digital (WDC.US) all rose more than 1%.
The resilience of discount retail is highlighted! ROST.US (ROST.US) raised its annual profit forecast twice, and same-store sales recorded the longest continuous rise in nearly five years. Ross Department Store raised its annual profit forecast for the second time this year, indicating that the company's development momentum is still strong. According to financial reports, Ross's second-quarter revenue reached 6.3 billion US dollars, up 13.9% year on year, exceeding expectations of 140 million US dollars; earnings per share were 2.66 US dollars, exceeding expectations of 0.71 US dollars. Although second-quarter earnings included approximately $0.60 per share in duty rebates, same-store sales increased 10%. This marks the second consecutive quarter of double-digit growth in same-store sales, the first trend in nearly five years. The company said it currently expects full-year earnings of $8.61 to $8.77, higher than the previous forecast of $7.50 to $7.74, and exceeding Wall Street expectations. The median of the new forecast means a 31% increase over the previous year, the strongest growth rate since 2022. Ross Department Store did not give a forecast range for same-store sales for the whole year, but it is expected to increase 6% to 7% in the third quarter and 4% to 5% in the fourth quarter, all higher than analysts' expectations. As of press release, US stocks rose more than 8% before the market on Friday.
Up to $100 billion! Broadcom (AVGO.US) is preparing huge AI chip financing to increase competition for Nvidia (NVDA.US) to dominate the market. Broadcom is currently negotiating a large-scale artificial intelligence chip financing plan with a number of lenders to raise more than 60 billion US dollars in debt capital to provide financing support for artificial intelligence companies such as Anthropic to obtain chips and data center infrastructure. People familiar with the matter revealed that if the sub-debt component being discussed is included, the size of the entire financing plan could reach up to 100 billion US dollars. This deal will be another mega-deal in the AI infrastructure financing boom. For Broadcom, this financing arrangement will also help expand the sales scale of its AI chips and other data center equipment, and further challenge Nvidia's leading position in the artificial intelligence computing market.
Rumor has it that SK Hynix (SKHY.US) plans to spend tens of trillion won to build a factory in Japan, or pioneer Korean semiconductor investment in Japan. Foreign media quoted industry sources on Friday as reporting that SK Hynix is considering building a memory chip production facility in Japan's Miyagi Prefecture. The investment scale of the project may reach tens of trillion won. SK Hynix's move is aimed at further expanding production capacity in response to the continued strengthening of global demand for memory chips. Judging from the volume of investment, the scale of tens of trillions of won is huge, but compared to SK Hynix's investment of millions of won in semiconductor industry clusters in Yongin and Hunan in mainland Korea, the production scale of the Miyagi plant is expected to be relatively small. According to industry analysts, the plant will be positioned as a new overseas production base for SK Hynix, complementing Korea's local industrial cluster. If the plan is finally implemented, it will be the first large-scale semiconductor manufacturing investment made by a Korean chipmaker in Japan.
Key economic data and event forecasts
Preliminary US SPGI manufacturing PMI value for August at 9:45 Beijing time