Market Dip Buying Opportunity? CPI, Rate Cuts & Q2 Earnings Outlook

Introduction

Hello, dear viewers! Welcome to our professional US stock channel where we don't just talk about news. I'm market analyst Xiaotao. Today, you might not have expected me to make this video. But there's a lot to cover: macro data, Powell's speech, the upcoming expectations of the Federal Reserve's interest rate cuts, an update on trading operations, and finally, a展望 for the second-quarter earnings season. Let's get started without further ado.

Before we begin, I'd like to give you 5 seconds to like and leave a comment. Every like and comment from you is the greatest support and encouragement for me.

Market Movements on July 1st

Let's first take a look at the market trends on July 1st, the first day of the third quarter. From the perspective of sectors, it's very clear. Big tech stocks fell by 1.5%, while the S&P equal-weight index rebounded by 1.2%. This means that most individual stocks in the market were rising today, but big tech stocks were falling, resulting in a 0.1% decline in the S&P 500. The Dow Jones Industrial Average rose by 0.9%. In other markets, the fluctuations in the US dollar and US Treasury bond markets were not significant. Gold rebounded by 1.1%, the Russell 2000 rose by 1% (it rose by up to 2% in the early trading session), and Bitcoin fell by 1.5%.

Overall, on July 1st (Tuesday), the market gave the impression that some institutions were rebalancing their portfolios in sectors or individual stocks. This seems to be a passive rather than an active behavior. However, I'm not sure why institutions carried out such operations on the first day of the third quarter. As a result, we can see that some stocks that performed well in the previous period have experienced significant declines, not only in the technology sector. For example, GE, my largest holding, also fell by nearly 4% on July 1st. This is because its year-to-date (YTD) performance has been relatively good. Of course, GE itself has no relation to the technology sector.

Labor Market Data

Next, let's look at the job openings data for May released on Tuesday. This data can reflect the current situation of the labor market. The final data was higher than market expectations. The market expected the JOLTS index to be 7.3 million, but the actual data was nearly 7.8 million. The opening rate or hiring rate was expected to be 4.4%, but the actual data was 4.6%, which is also hotter than expected. Although there was no market expectation for the quits rate, compared with last month (2.0%), this month's quits rate is 2.1%. A higher quits rate indicates a hotter labor market, as people are more willing to change jobs. Therefore, the quits rate has rebounded compared with last month, meaning the labor market has become even hotter. In addition, the layoff rate was 1.1% last month and 1.0% this time. Whether it's any one of these four sets of data or all of them combined, they all show that the labor market in May was hotter than that in April.

Powell's Speech

On Tuesday, Powell participated in a gathering of global central bank governors and was interviewed during a panel discussion. In the interview, the host tried to ask Powell whether there would be an interest rate cut in July. Nick, or the so-called "Fed's mouthpiece," translated Powell's words. In this speech, Powell did not give any hint that there would be an interest rate cut next month. Instead, he once again emphasized the view that strong economic data would make the Federal Reserve maintain a wait-and-see attitude.

If we look at the current market expectations for interest rate cuts, the probability of a rate cut in July is only 21%, while the probability of a rate cut in September is 100%. This means that the market now expects the Federal Reserve to cut interest rates by 1.12 times in September. For the whole of 2025, the market expects the Federal Reserve to cut interest rates by 2.6 times. That is, the market has already started to price in the possibility that the number of interest rate cuts in September may exceed one.

Possibility of a 50 - Basis - Point Rate Cut in September

In previous videos, I shared a view or a possibility that no one is discussing in the market now: there is a possibility that the Federal Reserve will directly cut interest rates by 50 basis points in September. Of course, this premise is that the inflation data in the next two months is not bad. What does "not bad" mean? It should be within 0.2%. On July 15th, the CPI data for June will be released. The current market expects the month-on-month growth rate of both the broad and core CPI to be 0.3%. I have shared on the X account that if the month-on-month growth rate of the CPI in the next two months is 0.2%, there is a very high probability that the Federal Reserve will directly cut interest rates by 50 basis points in September.

The logic behind this is very clear. In this panel discussion, Powell also mentioned that if there were no tariffs, the Federal Reserve would have cut interest rates in July. It is precisely because of the tariff issue that there was no rate cut in July. If the inflation data in the next two months is very good (a month-on-month growth rate of 0.2% means that tariffs have no impact on inflation), then it should have cut interest rates in July and should also cut interest rates in September. Since there was no rate cut in July, it is very reasonable for the Federal Reserve to directly cut interest rates by 50 basis points in September.

Conversely, if the month-on-month growth rate of inflation in the next two months is 0.3%, then there will definitely be an interest rate cut in September. The last situation is what if it is worse than expected, at 0.4%? Then it is very likely that there will be no interest rate cut in September.

From now until July 15th, if the market experiences a correction, it will be a relatively good buying opportunity. Of course, the prerequisite for this buying opportunity is that the inflation data must be less than or equal to 0.3%. If it is greater than 0.3% or equal to 0.4%, it depends on the extent of the market's decline from July 1st to July 15th. If the decline is very large, then 0.4 will not have a great impact on the market. If the decline is not so large, then the data of 0.4 can make the market still have room for further decline.

During this period until July 15th, there is a variable in the market on July 9th. Because on April 9th, Trump said that he would postpone the tariff policy for 90 days, and July 9th is the expiration date. Now Trump says that he is not considering postponing the July 9th deadline. That is to say, if it is not postponed, the previous tariff policy will take effect again. Now we know that the United States has only reached an agreement with the United Kingdom on tariffs, and has not reached any agreement with most other countries. However, it is interesting that today's news (Tuesday's news) did not cause panic in the market. Why? I think the main reason is that although Trump said he would not postpone it now, the market expects that close to July 9th or on July 9th itself, Trump will continue to postpone it. Or even if he does not postpone it on July 9th, perhaps one or two weeks later, after the market's reaction, Trump will still postpone the deadline. Why? Because the market has basically determined that Trump will not be very tough on the tariff policy.

Trading Operation Updates

Now let's make some updates on trading operations.

• AMU: This is a 2x leveraged ETF of AMD. I shared on my APP that I went long on this ETF and set a stop-loss at 33.5. On Monday, the stop-loss was triggered, and I was forcibly liquidated at 33.47. However, it also fell on Tuesday.

• Apple: I also shared on the APP that I added 10% of my position in Apple. I won't explain the reasons for adding Apple again, as I have already discussed it in the previous video. In fact, Apple has had a relatively good rebound on Monday and Tuesday. However, from a technical perspective, Apple has not broken out of the震荡区间 in the past two or three months. There is a resistance level at around 214. If Apple breaks through 214 and can stand firm above it in the future, it is very likely to break out of this period of震荡 and consolidation.

Earnings Season Outlook

Let's take a quick look at Factset data to summarize the first quarter and展望 the second-quarter earnings.

• First - Quarter Earnings: Before entering the first-quarter earnings season, the market was relatively pessimistic. The expected year-on-year growth rate of S&P 500 EPS was 7.2%, but the actual data was 13.3%. The main performance came from the communication services sector. In the communication services sector, which individual stocks contributed to this performance? For example, Meta, Disney, and Google.

• Second - Quarter Earnings Expectations: From March 31st to June 30th, in the past three months, has the market's guidance for the second quarter changed? Yes. Three months ago, the market expected the year-on-year growth rate of S&P 500 EPS in the second quarter to be 9.4%, but three months later, it was revised down to 5%. The main reason for the revision down is the energy sector. Although the communication services sector and the technology sector, which are relatively concentrated in technology stocks, have also been revised down, the revision幅度 is not so large. For example, the communication services sector was revised down slightly from 30% to 29.4%, and the technology sector was revised down from 18.2% to 16.6%. Overall, compared with three months ago, the market has revised down the growth rate of S&P 500 EPS in the second quarter. Of course, this revision down has also opened up the space for the final earnings to beat the current market expectations to some extent.

Market Valuation

Let's take a look at Factset data to see if there are still some sectors in the S&P 500 that are relatively cheap.

• S&P 500 Valuation: The current forward P/E ratio of the S&P 500 is 22 times, the 5-year average is 20 times, and the 10-year average is 18.4 times. So, there is no doubt that the S&P 500 is at a relatively high level compared with the historical average.

• Sector - Level Valuation: From the perspective of sectors, almost all sectors' current forward P/E ratios are higher than the 5-year average or the 10-year average. Only two sectors are exceptions: utility and healthcare. The utility sector itself has relatively small fluctuations. Now, the current valuation of the utility sector is 17.9 times, the 5-year average is 18.2 times, and the 10-year average is 17.8 times. That is to say, this sector is basically fluctuating around the 5-year and 10-year averages. The current forward P/E ratio of healthcare is 16.2 times, the 5-year average is 17.1 times, and the 10-year average is 16.3 times. So, from a certain perspective, healthcare is still relatively undervalued, at least compared with the historical average P/E ratio.

Market Participation

Let's talk about market participation and answer a question from a viewer in the previous video's comments. How to understand and use the 5-day moving average market participation?

• 20-Day Moving Average Market Participation: There are three lines: the white line represents the S&P 500, the blue line represents the Russell 2000, and the red line represents another index. As of Tuesday's close, the S&P 500 rebounded, and the 20-day moving average participation rate reached 73%. The other two indexes are 63% and 68% respectively, and they have not entered the overbought zone. In my opinion, the overbought zone is defined as more than 80%, and the oversold zone is defined as less than 20%.

• 5-Day Moving Average Market Participation: On Tuesday, the equal-weight index rebounded, so the 5-day moving average participation rate also rebounded. Although the index fell, the market sentiment actually expanded on Tuesday. Don't be confused by the index itself.

• 50-Day Moving Average Market Participation: On Tuesday, the 50-day moving average participation rate reached 81.5%, which is a new high in the past six or seven or even eight months. That is, the market participation rate has never been so high if defined by the 50-day moving average. The Russell 2000 also rebounded to 74%, while the Nasdaq is relatively weak at 62%. My definition of the overbought and oversold zones for the 50-day moving average participation rate is the same as that for the 20-day moving average.

Why is it that when the 5-day moving average enters the overbought zone, it can be one of the signals to judge that the market may have a turning point or a relatively good signal for judgment? If we look at the trend chart of the past year, the red dotted line represents the 80% participation rate. That is, if the white solid line is above the red dotted line, it means that the market has entered the overbought zone. In a sense, if we put the white and blue lines together, when the white line is at a relatively high level or close to 80%, the blue line has experienced a correction in the future. Many time points are similar. Although there may be a time point where the blue line has risen instead of falling, in the previous two time points, we can see that the blue line has fallen. And in the short term, there are also several time points where the blue line has fallen. This is four time points in the past year. Another time point is in May this year. We can see that the white line has also entered 80 or just above 80, and then the blue line has experienced a small decline. Another time point is in June. In June, it was just close to 80 but not yet 80, and then the blue line also experienced a small decline. The decline幅度 is not large, but it did decline.

If I make a statistical analysis of the past three years, taking the first time that the 50-day moving average participation rate exceeds 80 as an example, there have been 11 times in the past three years when the 50-day moving average market participation rate reached 80 or above. The average return in the next week is -0.37%. In the past 7 times (from 2024 to 2025), the average decline幅度 is 0.64%. Looking back at 2022 and 2023, compared with 2024 and 2025, the biggest difference is that in 2022 and 2023, each time the 50-day moving average participation rate was above 80 for a long time, which means that the market was optimistic for a relatively long time. In contrast, in 2024 and 2025, the market was optimistic for a relatively short time. For example, it reached 80 or above on March 11th, then fell, reached 80 or above again on March 21st, then fell again, and reached 80 or above on March 27th, and then fell again.

In short, don't rely on a single indicator to help us judge whether the market will definitely rise or fall in the future. However, I do think that the 50-day moving average market participation rate is a short-to-medium-term indicator that can be used to judge whether the market sentiment is in an extreme situation and whether there is a possibility of a correction in the future. But I don't want everyone to rely on only one indicator. It's best to use some other indicators as well. And these indicators are only limited to the index. In the previous video, I said that although the index has entered a possible overbought zone, there are still opportunities in some individual stocks and sectors.

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That's all for today's content. See you next time!