US stock outlook | Futures of the three major stock indexes fell sharply, US bond yields, oil prices weakened, and most high-tech stocks weakened

Pre-market market trends

1. On August 18 (Tuesday), the futures of the three major US stock indexes fell sharply before the US stock market. As of press release, Dow futures were down 0.02%, S&P 500 futures were down 0.36%, and NASDAQ futures were down 1.06%.

2. As of press release, the German DAX index fell 0.37%, the UK FTSE 100 index rose 0.13%, the French CAC40 index fell 0.47%, and the European Stoxx 50 index fell 0.43%.

3. As of press release, WTI crude oil rose 0.55% to $84.20 per barrel. Brent crude rose 0.21% to $91.06 per barrel.

Market news

The situation in the Middle East is heating up! Both the US and Iran “are not seeking an extension” of the Memorandum of Understanding. At the end of the 60-day negotiation window established by the Memorandum of Understanding between the US and Iran, the two sides have yet to start formal negotiations or reach a new agreement. US President Trump said he had no intention of extending this temporary cease-fire agreement and threatened to bomb Oman, claiming that the Gulf country might hinder the conclusion of a peace agreement. A senior Iranian official recently said in an interview that Iran has set a deadline of several weeks for the US to fully implement the Ibero-US Memorandum of Understanding, and Iran will not wait indefinitely for the US to continue to implement the maritime blockade. The official said Iran has decided to “shift its policy from defensive to all-out offensive” as “efforts to reach a permanent armistice agreement with the US are at an impasse.”

Bank of America fund manager survey: Stock holdings hit a new high in nearly five years, yet Hartnett shouted “it's time to withdraw.” Bank of America's latest global fund manager survey shows that bullish global investors have raised their stock holdings to the highest level in nearly five years, and few are bearish. A team of Bank of America strategists led by Michael Hartnett said that 56% of the net fund managers surveyed overallocated stocks. This ratio hit a new high since November 2021, while the cash allocation ratio fell to an “extremely low” 3.5%. The Hartnett team said, “The market consensus is that the macroeconomy will not land, the Federal Reserve will not raise interest rates, AI capital spending will not be cut, the Democratic Party will not win big, and the bears will not have the upper hand.” But at the same time, they warned that current position signals “continue to suggest investors retreat or rotate in risky assets rather than increase positions,” and reiterated their recent view of moving to a more defensive sector.

Inflation stickiness, AI debt, and fiscal disorder are being strangled by multiple strangulation, and US bond yields have risen. The rise in oil prices caused by the longer-lasting war may further increase the pressure on prices in the US and reinforce the reasons for the Federal Reserve to raise interest rates. At the same time, corporate borrowing has surged, driven by the global AI computing power investment boom, causing Washington and Silicon Valley to compete for the same limited pool of capital. As of press release, the “anchor of global asset pricing” — the 10-year US Treasury yield — reported 4.744%, and the 30-year US Treasury yield was 5.331%. Once US bond yields continue to rise, the impact will not only be on bonds — technology stock valuations, corporate financing, arbitrage transactions, cross-border capital, and even risk appetite in emerging markets may all be repriced.

US debt may surpass $40 trillion a few months ahead of schedule. According to reports, US debt may break the $40 trillion mark this week, several months earlier than previously predicted, partly because Trump's tariff policy was overturned, leading to a loss of billions of dollars in fiscal revenue. The loss of fiscal revenue forced the US Treasury to speed up borrowing to cover national expenses. Six months ago, the Congressional Budget Office predicted that the total amount of US Treasury bonds this fiscal year would reach 39.4 trillion US dollars. However, on Monday, data released by the Ministry of Finance showed that treasury bonds had reached 39.9 trillion US dollars and continued to grow. The accelerated accumulation of debt means that the next deadline for raising the legal borrowing limit may also come sooner. Just last year, Congress just set the debt ceiling at $41.1 trillion. Budget analysts said that the loan amount may reach this threshold early next year, forcing legislators to either suspend the debt ceiling or raise the upper limit again to avoid the risk of a severe economic default.

Is the Federal Reserve's policy actually already “loose”? The San Francisco Federal Reserve's new model of neutral interest rates gives hawks theoretical ammunition. According to a study released by the San Francisco Federal Reserve on Monday, if the mid-term estimate of the so-called neutral interest rate is used as a measure — that is, borrowing costs will neither depress the economy nor stimulate the economy's interest rate level — then the Fed's current policy interest rate is likely to be relaxed. This conclusion contrasts with the judgment of most current Fed policymakers, who believe that current monetary policy is still binding, or may already be at a neutral level. This conclusion also clashes with the picture drawn by the Fed's policymakers in their estimates of long-term neutral interest rates; according to these estimates, the current 3.50% to 3.75% benchmark interest rate range may be about 0.5 percentage points higher than the neutral level. Federal Reserve policymakers often use neutral interest rate estimates to help determine whether monetary policy is tight or loose, and decide whether interest rates should be raised or cut based on this.

Individual stock news

Most US tech stocks fell before the market. Before the US stock market on Tuesday, as of press release, Western Digital (WDC.US) and Seagate (STX.US) fell more than 5%, SK Hynix (SKHY.US), SanDisk (SNDK.US), Intel (INTC.US), Micron (MU.US) fell more than 4%, ASML.US (ASML.US), AMD (AMD.US) fell more than 3%, Oracle (ORCL.US), TSM.US (TSM.US), and SpaceX (SPCX.US) fell more than 2%, NVDA (NVX.US) DA.US) dropped nearly 2%. Optical communications stocks generally declined, Lumentum (LITE.US) fell nearly 6%, and Mewell Technology (MRVL.US) and Coherent (COHR.US) fell more than 5%.

Tesla (TSLA.US) Cybercab took the lead in Austin this month, and employees became the first “test riders”. According to reports from tech media quoting people familiar with the matter, Tesla has revealed to internal employees that it is intensively preparing for the public launch of Cybercab. The plan is to launch it first in Austin, Texas, and it will be implemented within this month as soon as possible. The Cybercab is Tesla's model for autonomous driving. Eliminating the steering wheel and pedals, it is regarded as the core carrier of the company's Robotaxi (Robotaxi) strategy. In the future, Tesla plans to deploy this model on an autonomous ride-hailing service network on a large scale. Tesla told employees that Cybercab will first open the ride experience to internal employees on public roads, and within a few days, the model will officially be included in Austin's Robotaxi service fleet. In recent weeks, the company has carried out a number of preparations, including test drive tests, test rides for employees on private roads, and joint training exercises with local emergency response departments.

Resilience in home improvement spending has borne the downturn in the property market! Home Depot (HD.US)'s Q2 results exceeded expectations, maintaining full-year sales guidance, but cautioned that the outlook remains uncertain. Home Depot reported second-quarter results that surpassed market expectations, indicating that consumer spending on home improvement projects remained resilient despite high borrowing costs and housing costs. Financial reports show that in the second quarter ending August 2, Home Depot's sales increased 5.7% year over year to US$47.86 billion, better than analysts' average expectations of US$47.24 billion; same-store sales increased 1.7%, the highest growth rate since the end of 2022, far exceeding the analysts' average expectation of 0.94%; and adjusted earnings per share were US$4.92, better than analysts' average expectation of US$4.73. The company reiterated its full-year sales guidance, but warned that the broader real estate market has yet to recover due to concerns about housing affordability, borrowing costs, and consumer uncertainty, and the outlook remains uncertain. As of press release, Home Depot's US stock rose nearly 2% before the market on Tuesday.

Optical communications ODM leader Fabrinet (FN.US) Q4 revenue increased 45% year-on-year to a record high, with the share of data center revenue breaking 50% for the first time. According to financial reports, Fabrinet achieved revenue of US$1,316 billion in the fourth fiscal quarter, up 45% year on year, above market expectations of about US$1.27 billion, and set a revenue record for the 12th consecutive quarter; non-GAAP earnings per share were US$4.10, higher than analysts' average expectation of US$381. Data center revenue reached $669 million, accounting for 51% of total revenue. This segment covers products such as optical transceivers, data center interconnects, high-performance computing components, silicon photonics, and co-packaged optics (CPO), and mainly benefits from AI infrastructure and hyperscale data center construction requirements. The company also gave guidance for the first fiscal quarter of FY2027, which exceeded expectations. Although both financial reports and guidance surpassed expectations, as of press release, US stocks fell more than 9% before the market on Tuesday. Some analysts believe that the stock's relatively fair value is already too high. Investors may be re-evaluating valuations, and in particular, high growth expectations are fully reflected in stock prices.

The results exceeded expectations! BHP Billiton (BHP.US)'s annual profit surged 30%, and copper revenue surpassed iron ore for the first time. As booming commodity prices boosted earnings, BHP Billiton's profit increased by nearly one-third, and annual revenue from copper surpassed iron ore for the first time. The world's largest mining company said that in the 12 months to June, revenue was $58.8 billion, up 15% year over year, higher than expected $57.8 billion; net profit to mother rose to $13.2 billion, up 30% year over year, breaking analysts' expectations of $12.6 billion. For the first time, the copper business contributed more than half of the company's underlying EBITDA and generated significant free cash flow, which meant that its copper business grew self-sufficient.

Key economic data and event forecasts

At 21:15 Beijing time, the monthly rate of US industrial output in July

Performance Forecast

Wednesday morning: KEYS.US, Zhongtong Express (ZTO.US), Lujin (LU.US)

Wednesday pre-market: Lowe's (LOW.US), Target (TGT.US), Adeno (ADI.US), TJX (TJX.US), Manbang (YMM.US), Jinshanyun (KC.US), Weibo (WB.US)