U.S.stocks have recently experienced narrow fluctuations,with the S&P 500 Index and the Nasdaq Composite Index reaching new historical highs at the beginning of last Friday's trading session before giving up their gains.Although various economic data have boosted expectations for interest rate cuts,the stabilization of U.S.Treasury yields has dampened risk appetite.

In the coming week,investors will continue to watch whether the chip sector can stabilize.At the same time,trading volume is expected to decrease due to the Independence Day holiday,and the impact of monetary policy expectations on risk appetite may intensify market volatility.

Expectations for a rate cut in September have slightly increased.Similar to the May Consumer Price Index (CPI),the latest Personal Consumption Expenditures (PCE) also continued the downward momentum.Data shows that overall inflation was flat compared to the previous month.Meanwhile,core PCE,which excludes volatile items such as food and energy,rose by 0.1%,reaching a new low since November last year,and its year-over-year growth rate also experienced a slight decline.

For the Federal Reserve and the U.S.economy,the direction of prices is crucial for achieving a soft landing.The final value of the University of Michigan's June consumer survey reached a new low in nearly six months.The good news is that the one-year inflation expectation has dropped from 3.3% to 3.0%.Although Americans believe that inflation will ease,high inflation and slowing income growth have made them more concerned about their financial situation,leading to consumer spending growth last month that was lower than expected.

The job market continues to show signs of potential loosening.With the number of initial jobless claims remaining high,the number of continued jobless claims unexpectedly rose to a new high since November 2021 last week.The market will closely watch the June non-farm report to be released next week.The U.S.unemployment rate has already risen to 4.0% in May,and the Federal Reserve previously expected the labor market to remain essentially stable this year.

Bob Schwartz,a senior economist at Oxford Economics,said in an interview with Yicai Global that with prices remaining flat in May,real disposable income is growing at a reasonable pace."Federal Reserve officials want to see more encouraging inflation reports before starting to cut interest rates,while paying attention to the downward risks in the employment sector."

However,the favorable data did not suppress U.S.Treasury yields,and medium to long-term U.S.Treasuries did not fluctuate much last week.The 2-year U.S.Treasury,closely related to interest rate expectations,closed at 4.72%,up 47 basis points since the beginning of the year,and the benchmark 10-year U.S.Treasury is approaching 4.35%,up nearly 48 basis points within the year.Federal funds rate futures indicate that the possibility of a rate cut in September has slightly increased to around 60%.

At the same time,the Federal Reserve still has not reached a key consensus on the issue of interest rate cuts.Raphael Bostic,President of the Federal Reserve Bank of Atlanta,reiterated that he expects one interest rate cut this year; Mary Daly,President of the Federal Reserve Bank of San Francisco,emphasized that inflation is gradually cooling,but there is still more work to be done.

Scott Helfstein,Head of Investment Strategy at Global X,believes that the inflation index shows progress in price stability,which is the most important."The market and consumers may not care whether our inflation rate is 2% or 3%; they all want price stability.This could further promote better-than-expected price trends,thus creating conditions for interest rate cuts."Schwartz told Yicai that there is considerable uncertainty in the path of monetary policy now,"Given that inflation is still above the Federal Reserve's 2% target,if the economy unexpectedly encounters growth panic and prices remain above target,this will pose a potential dilemma for the Fed." He believes that the trend in data leading up to the Jackson Hole central bank conference will be very critical,and expects the Fed to cut interest rates for the first time in September.

Focus on the semiconductor sector trend

Against the backdrop of geopolitical risks,fluctuating inflation,and swinging expectations for Federal Reserve policy,technology stocks led the three major U.S.stock indices to close higher in the first half of the year,with the S&P 500 recording double-digit gains for three consecutive quarters.

Driven by the artificial intelligence boom,Amazon became the fifth U.S.public company to break through a market value of 2 trillion dollars last week,reaching a new milestone.Mike Dickson,Head of Research and Quantitative Strategy at Horizon Investments,said that the artificial intelligence theme has always been central and has truly driven the concentration of the entire market.

At the same time,the U.S.banking industry also successfully passed this year's Federal Reserve stress tests.The assessment results showed that all 31 banks participating in the test could maintain sufficient capital to withstand the hypothetical scenario of an economic recession.Against the backdrop of the Fed maintaining a contractionary policy stance,the asset risks of regional financial institutions in commercial real estate behind the bankruptcy of Silicon Valley Bank once triggered concerns about the operational safety of financial institutions.

Funds flow shows that as investors' expectations for interest rate cuts heat up,U.S.stock funds are sought after.Data provided by the London Stock Exchange Group (LSEG) to Yicai reporters shows that last week's net inflow into U.S.stock funds reached 16.37 billion U.S.dollars,a new high in nearly a year.Among them,large-cap stock funds led the market,attracting 21.28 billion U.S.dollars in funds.At the same time,money market funds saw a net outflow of 6.54 billion U.S.dollars,marking the second consecutive week of outflows.

For the upcoming market,Michael Wilson,Morgan Stanley's star analyst and Chief Equity Strategist,advises investors to continue investing in high-quality growth stocks while paying attention to defensive sectors.He believes that the U.S.economy is approaching the end of the business cycle,a period usually defined by slowing growth and a retreat of stock market leaders.In the past week,Nvidia is still in the process of stabilizing,and the poor performance guidance from Micron Technology,which was expected to be promising,has also dampened the market's enthusiasm for the chip industry.

The election factor is also worth paying attention to.Thomas Martin,Senior Portfolio Manager at Globalt Investments,said that the first debate between U.S.President Biden and Republican rival Trump also put pressure on the stock market,"The uncertainty after the debate did not decrease,but instead people need to think about what the next U.S.president and the corresponding economic policies might mean."

Charles Schwab wrote in its market outlook that the late-week pullback in U.S.stocks is related to end-of-quarter fund rebalancing and the rise in U.S.Treasury yields.Looking at the rebound in cyclical sectors,it is an encouraging sign for the bull market and should help alleviate concerns about the high concentration of technology stocks.