---
title: "US Stock Market: Is the economy tough, so giants don't have to worry?"
description: "After a period of volatility, tech giants in the US stock market remain the most high-quality assets in the market"
type: "topic"
locale: "en"
url: "https://longbridge.com/en/topics/24610449.md"
published_at: "2024-10-21T11:40:29.000Z"
author: "[Dolphin Research](https://longbridge.com/en/news/dolphin.md)"
---

# US Stock Market: Is the economy tough, so giants don't have to worry?

Since last week, the US earnings season has officially begun, with individual stock performance once again becoming the focus of the market. However, from a micro perspective, the performance of individual companies is always influenced by the macroeconomic environment. Therefore, today we will first understand the US economic situation in September as shown in the October data in our weekly strategy report.

One of the main releases last week was the US social retail data, and the other was the federal fiscal revenue and expenditure situation for September, the closing month of the fiscal year. Dolphin Jun tried to understand the consumption dynamics of US residents from these data.

**I. 2024: $1.8 Trillion Fiscal Deficit**

By the end of September, the US federal government's fiscal year 2024 came to a complete end. In this economic cycle, the unwavering deficit policy of the US federal government is one of the reasons why the US economy has withstood the high interest rates.

The total fiscal deficit of the US federal government in 2024 was $1.8 trillion, which was $100 billion less than the deficit expectation raised by the Budget Office some time ago. Compared to the previous year's deficit of $2 trillion (nominal $1.7 trillion, but with a return of over $300 billion in education funds, the actual deficit was $2 trillion), 2024 did show some convergence.

Among federal expenditures, the largest increase was in interest payments, which are mainly payments on existing debt and do not contribute to the real economic output. Therefore, Dolphin Jun focused on the narrow deficit rate after deducting interest payments. It can be seen that although the narrow deficit rate in the first three quarters of 2024 has converged compared to 2023, it is still in a state of high fiscal stimulus compared to the 1-3% deficit rate before the pandemic.

In other words, although the fiscal stimulus in 2024 is not as exaggerated as in 2023, in such a high-interest and pro-cyclical economic environment, the federal government's deficit level is still very high.

**II. Not Only Government Investment/Consumption, but Residents are also Strong**

Furthermore, another interesting point is that if corporate withholding and self-declaration of individual income tax represent residents' income, and corporate tax payments represent corporate profits, then the US economy still looks good in September:

a. In September, the federal government's collection of individual income tax from residents increased by 13% year-on-year;

b. Corporate income tax paid to the federal government increased by 14%;

c. Employment and general retirement income (which can be understood as social security contributions made by companies for employees) increased by 9% year-on-year.

In addition to taxes reflecting good corporate profits and residents' income, the social retail data in the US for September also performed well: the seasonally adjusted month-on-month growth rate was 0.43%, equivalent to a nominal social retail growth rate of 5.3%. Moreover, core retail sales growth excluding dining, motor parts, gas stations, and building materials accelerated from 0.3% last month to 0.7% in September. In other words, after excluding interest-sensitive industries, the actual physical retail growth rate in the US was even higher.

At the same time, the previously sluggish catering consumption began to pick up in September. Considering that catering belongs to the category of resident services consumption, this is a good sign for the higher proportion of service consumption in resident consumption.

However, an interesting point here is that since the expectation of interest rate cuts was confirmed, especially since entering September, the interest rate cut issue has basically settled, with a 50 basis point cut already implemented. However, the gradual implementation of interest rate cuts since the end of the second quarter has led to a relatively sluggish credit growth extended by the U.S. commercial banking system to the whole society. This includes consumer credit and revolving credit card growth rates remaining relatively low, with a nominal year-on-year growth of only 1.4%.

This seems to indicate to some extent that the further growth of resident consumption, which is almost not hitting bottom at the moment, is more about improving residents' expectations under the current relatively good situation of residents' balance sheets, rather than actually increasing the attractiveness of residents' leverage.

As Dolphin previously mentioned, due to the low actual interest rates that residents obtained before this round of rate hikes, the 50 basis point rate cut this time is not enough to stimulate residents to leverage up. This rate cut is more of a preventive measure. If the economy is indeed weaker and there is a need to stimulate credit demand growth from the current 1-2% to the close to 6% growth before the epidemic in 2019, then the actual rate cut magnitude and speed will be far greater than the current pace guided by the Federal Reserve.

The Federal Reserve's preventive rate cut also increases the possibility of a soft landing in the United States. In this context, looking at the U.S. tech giants, although their valuations may seem relatively high (with an average of over 30 times earnings, and even the lowest Google has a PE ratio of over 20X), a weaker U.S. dollar will help their overseas business. At the same time, with the actual fundamentals of the United States not being bad, their current performance risks are not significant. After some volatility, they still remain the highest quality assets in the market.

As for Chinese concept stocks, Dolphin still maintains the previous judgment, reducing holdings and maintaining a light allocation, waiting for the third-quarter performance to be released, possible macro signals improvement in the fourth quarter, and consumption data from Double Eleven to determine whether to increase holdings at the right time.

**III. Portfolio Rebalancing and Returns**

No portfolio rebalancing took place last week. The Alpha Dolphin portfolio's returns fluctuated at 0 last week, outperforming Hang Seng Tech (-2.9%) and MSCI China (-2.8%), but underperforming the Shanghai and Shenzhen 300 Index (+1%) and the S&P 500 (+0.9%)

Since the start of the portfolio testing (March 25, 2022) until last weekend, the portfolio's absolute return was 67%, with an excess return compared to MSCI China of 75%. From the perspective of asset net worth, Alpha Dolphin's initial virtual assets were $100 million, which exceeded $170 million by last weekend.

**V. Individual Stock Profit and Loss Contribution**

Behind Alpha Dolphin's zero fluctuation in holdings last week, it was mainly due to the stable performance of TSMC, which performed well last week. In addition, SMIC's sharp rise after a big drop acted as a hedge against the retreat of Chinese concept assets.

Specific analysis of the rise and fall is as follows:

**VI. Asset Portfolio Distribution**

The Alpha Dolphin virtual portfolio holds a total of 14 individual stocks and equity ETFs, with 3 core holdings and 8 equity assets underweighted. The rest are distributed in gold, US bonds, and US dollar cash. As of last weekend, the asset allocation and equity asset holding weights of Alpha Dolphin are as follows:

**VII. Key Events This Week**

This week is a hiatus for US tech giants and hard-tech AI, with only Tesla's financial report in between. Mainly, it's the overseas Chinese concept and A-share third-quarter report companies. Alpha Dolphin's focus on the following companies is summarized below:

**Risk Disclosure and Statement of this Article:** [**Dolphin Research Disclaimer and General Disclosure**](https://support.longbridge.global/topics/misc/dolphin-disclaimer)

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---

> **Disclaimer**: This article is for reference only and does not constitute any investment advice.