US Stocks End 5-Week Winning Streak! What Will the Future Trend Be?

Last week (6/19-6/23), most stock markets fell. The S&P 500 Index dropped 1.4%, the Nasdaq 100 Index dropped 1.3%, and the Dow Jones Industrial Average fell 1.7%. The STOXX 600 Index in Europe fell 2.9%.

【Source: MacroMicro   Date2023/6/19-2023/6/23】

【Source: MacroMicro   Date2023/1/1-2023/6/23】

On June 23rd, the US and Eurozone released their PMI data for June. The data shows that the US June Markit Manufacturing PMI came in at 46.3, a new low since December 2022, falling short of the expected 48.5. The Services PMI initial value was 54.1, slightly better than the expected 54. The Composite PMI initial value was 53, lower than expectations.

The Eurozone's PMI was also weak. The Eurozone June Markit Manufacturing PMI hit a 37-month low, while the Services PMI hit a 5-month low, and the Composite PMI hit a 5-month low.

【Source：investing.com  Trend of US Markit Manufacturing PMI】

Despite PMI hitting multi-month lows, economists at S&P Global Market Intelligence say the overall expansion of U.S. business activity in June remains robust, with the U.S. economy expected to grow around 2% in the second quarter.

Mitrade Analyst：

The US economy has been dragged down by sluggish manufacturing, but supported by a strong services sector that has created employment opportunities, resulting in low economic growth and low unemployment rates. However, the manufacturing PMI is positively correlated with the services PMI, and we expect the weakness in manufacturing to drag down the services sector in the future, increasing the risk of a US and European recession.

Last week, both the Bank of England and the Norwegian central bank unexpectedly raised interest rates by 50 basis points, with the market expecting another 50 basis point increase from the Bank of England in August. In addition, the central banks of Norway and Switzerland have both hinted at further rate hikes in the near future. 

The surprise rate hike by the Bank of England was due to record-high core CPI inflation, with US inflation also remaining stubbornly high.

On June 22nd hearing, Powell stated that inflation is still well above the Fed's target of 2% and there is a long way to go to bring it back down to that level. If the economy performs as expected, even when policy rates have reached an appropriate restrictive level, the Fed will continue to act. "This year will be appropriate for raising interest rates again, perhaps twice," he said.

Now, there are increasing divisions within the Federal Reserve on whether to continue raising interest rates and the magnitude of such increases. Bowman and others advocate for further rate hikes, while other Fed officials have indicated they need to study more data before making a decision, with Atlanta Fed President Raphael Bostic calling for no more rate hikes.

【Source：CME FedWatch】

Mitrade Analyst：

Today, the market has fully absorbed the expectation of one more interest rate hike this year, but there is still no consensus on whether there will be two hikes. We expect that the probability of the Federal Reserve raising interest rates twice this year is still high. It is not ruled out that after a 25 basis point hike in July, they may "skip" September and continue to raise interest rates later.

Multiple central banks aggressively raising interest rates, coupled with Fed Chairman Powell's firm hawkish stance, have raised concerns about an economic recession, leading to an end to the continuous rise of US stocks.

Last week, the S&P 500 fell 1.4%, ending its five-week consecutive gains; the Dow Jones fell 1.7%, ending its three-week consecutive gains; and the Nasdaq fell 1.4%, ending its eight-week consecutive gains.

According to EPFR Global data, benefiting from high market sentiment, technology stocks attracted $19 billion in inflows in the first two months. However, some investors were quick to exit thereafter. In the week ending June 21st, outflows from technology stocks reached a record high of $2 billion in the past 10 weeks.

Bank of America warns that the small dot-com bubble from 24 years ago is repeating itself, and there is a greater likelihood of a summer decline in US stocks than a rise. The S&P 500 index may rise up to 100-150 points before Labor Day in September, but the decline could reach as much as 300 points.

Mitrade Analyst：

As we have emphasized before, there is a high risk of a decline in the U.S. stock market in the second half of the year. As the Federal Reserve continues to raise interest rates and the economy further deteriorates, the growth of corporate profits will further slow down, which will deepen the impact on the stock market. However, in the short term, due to the current optimistic market sentiment, it is not impossible for the index to rebound again.