Market Updates and Key Developments
U.S. Stocks: Growth Potential and Investor Dynamics
After the tax break, the market focus has shifted. Institutions, despite initial panic, now see growth potential in U.S. stocks. Reports from Barclay and J.P. Morgan indicate room for growth, with institutional investors expected to expand stock configurations. Deutsche Bank data shows the current overall stock price of institutions is low, with only about 23% of the past decade being lower. Although U.S. stocks rebounded from the April low, fund managers remain cautious due to Trump's trade policies. Retail investors, however, have driven the S&P 500 to a historical peak. In 2024, retail accounts for 17% - 23% of total U.S. stock trading volume, and their actions can significantly impact prices in low - liquidity environments. Since April, options trading has increased, with 0DTE options for tech stocks like Tesla, Nvidia, Meta, and QQQ being popular. Institutional investors were net sellers or allocated to defensive assets until the end of May. Barclay's global stock strategy plans to continue going long on U.S. stocks, and J.P. Morgan predicts U.S. stocks will continue to rise as the Trump administration's focus shifts from tariffs to tax cuts. Deutsche Bank's U.S. stock strategy team expects the S&P 500 to reach 6,550 points by the end of the year, with a 9% growth potential.
CPI Data and Market Concerns
The next major market concern is the CPI data to be released tomorrow. It will show whether tariffs have affected inflation. Investors are hesitant to enter the market due to concerns about debt fluctuations, and the CPI result will be crucial. A hot CPI may end the current optimistic mood. However, Aji believes the CPI may cause short-term turbulence but is unlikely to reverse the overall optimistic sentiment. Housing, oil prices, and salaries are slowing down, which can counteract the inflation threat from tariffs. Trump's tariffs have been suspended for 90 days, and only a 10% general tariff and a 25% car and steel tariff are in effect, having a partial impact on inflation. The U.S. considers multiple factors, and if the CPI meets expectations, the current position will not change.
U.S.-China Negotiations
Yesterday, investors awaited the latest negotiation news, only to learn that the negotiation would continue today. The first - day negotiation lasted six hours until 8 p.m., and the second - day schedule started at 10 a.m. Trump's tone has loosened, saying the talk with China was good. The U.S. negotiation lineup includes President Besson, Business Minister Rodney, and Trade Representative Greer, indicating that export control is a core issue. China's representatives, led by Vice Prime Minister Li Feng, did not speak to the media. An informant revealed that the U.S. is willing to consider withdrawing some technology exports in exchange for rare earth exports. Rare earths are crucial in energy, defense, and high-tech fields, and China accounts for nearly 70% of global production. The U.S. is considering releasing chip design software, spraying engine parts, and chemical and material export restrictions, but the situation is preliminary. Trump did not clearly answer whether the control will be lifted. White House National Economic Committee Chairman Hassett said the U.S. hopes China will relax the export system, and in return, the U.S. will ease some export restrictions, but AI chips like the H20 series are off-limits. Huawei's founder Ren Zhengfei is not satisfied with U.S. restrictions, stating that Chinese companies can achieve advanced production through chip sealing and stacking. Aji believes the negotiation between China and the U.S. is promising, and the release of both sides is the key.
Japan's Central Bank Policy
Today, Japan's central bank president, Jitian Henan, made a statement at the Congress. He emphasized that the position of continuing to increase has not changed, but gave conditions. The central bank will continue to increase and gradually remove monetary stimulus when it is more confident that the bottom-level inflation is close to or stable near 2%. The bottom-level inflation is an indicator created by the Japanese central bank to more accurately reflect actual price changes. Although the deep black line in the chart is higher than 2%, the other two lines are below 2%. Jitian also warned about the risk of interest rate decline, saying that if the economy and price suddenly fall, the central bank's room to reduce interest rates is limited. The market believes that the urgency of the central bank's interest rate increase has further relaxed. Another important issue for the Japanese central bank is the rhythm of debt reduction. The former currency policy supervisor predicted that the Japanese central bank may slow down the pace of national debt purchase in the next fiscal year. The market generally expects that the Japanese central bank will not increase interest rates this week, and the next increase may be in October or even March next year. The Japanese central bank is expected to increase the interest rate to 1.5% - 2%. Aji believes this statement is not beneficial to the short-term market as it may drive up the U.S. national debt rate and lower U.S. stock valuation.
AI Market Developments
Today, two important news items stimulated investors' optimism about AI. OpenAI's annual subscription income has risen to $1 billion, mainly driven by ChatGPT. Since its launch in late 2022, ChatGPT has become the fastest-growing consumer app, with over 500 million weekly active users. Other AI startup companies, such as Cursor and Anthropic, have also seen significant revenue growth. This shows that AI tools are not just a concept but are being adopted by consumers and companies. Although these companies are still losing money, investors see the potential for future profit. OpenAI is promoting a $400 billion financing round, and Anthropic has received support from Google, Amazon, and others. TSMC also announced good news, with its May revenue rising by 40% to 3,205 billion new Taiwan dollars, confirming strong demand for AI chips. TSMC CEO Wei Zhejia said the company still expects 20% growth in 2025 and that the demand for AI chips is far greater than supply. These two messages reflect that AI investment has depreciation capability, growth has not slowed down, and AI applications are spreading, which are key factors supporting investor optimism.
Potential U.S. Treasury Chairman
Bloomberg reported that Trump's allies are pushing for Besson to be the successor to Powell as the U.S. Treasury Chairman. Although the formal interview process has not started, Trump said he will soon announce the candidate. Besson is a potential candidate, along with the current U.S. Treasury Secretary Walsh and former U.S. Treasury Secretary Malpass. Besson is familiar with Trump, increasing his chances of being elected. However, he was marginalized on the tariff issue, and Trump's tariff actions in April may have affected him. Now, as the core figure in trade negotiations, it remains to be seen if he will take the position.
Tesla's Unmanned Driving
Tesla left a mysterious message on its X account, posting a robot and car expression. A Tesla blogger asked for the date of the launch of Austin's unmanned driving business in June, and Tesla replied "three early." Some people guess it may mean three days later. The launch of unmanned driving business is expected to boost Tesla.
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Conclusion
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