How long will the crazy bull market in U.S. stocks last?
This week, the implied volatility of SPX hit bottom, touching only 75 points, which is extremely low, especially during the current earnings season. This is quite rare, particularly with large tech stocks like TSLA, GOOG, and IBM reporting their earnings this week.
However, according to the reports from global companies like 3M and Pepsi that have already disclosed their earnings, the continuous decline in the US dollar index has led to a significant outperformance in USD-denominated revenue due to the depreciation of the dollar. This currency-driven performance change will reflect on companies with global operations, and TSLA and GOOG happen to fall into this category. Thus, the market may already be pricing in such effects in advance.
Therefore, from a broader market perspective, the most noteworthy part of the earnings season is the AI-related segment—both in terms of how much more GPU cards companies plan to purchase and the expected returns from AI-generated revenue.
These factors directly influence market trends. However, given that TSMC's earnings have already far exceeded expectations, the direction of the AI mainstay remains unchanged, leaving only thematic speculation to run wild.
Of course, rare earth companies like MP have been repeatedly active, and Apple's $500 million investment in them marks the strategic development phase of US domestic substitution. Therefore, this theme is expected to continue being hyped in the second half of the year.
The next PCE data release is on July 31, August 1 is the effective date for new tariffs, and it’s also the day of the major non-farm payroll data release. The next CPI data release is on August 12.
Last week’s retail sales and unemployment claims data were strong, so the major non-farm payroll data on August 1 should also be good. Hopefully, this series of events and data will bring back the 'rate cuts falling short of expectations' narrative, allowing the market to pull back under this pretext.
If there’s still no pullback, then I feel I can continue to add positions, pushing my allocation to its upper limit, because this would mean the market has entered a 'melt-up' phase, rising while ignoring all risks.
At worst, it’ll be a race to see who can exit fastest. In August 2021, Powell announced the start of tapering at the Jackson Hole meeting and clearly hinted at upcoming rate hikes. But the market was so optimistic at the time that it ignored all bad news, focusing only on the good, and continued to surge until January of the following year.
It wasn’t until people realized Powell wasn’t joking—inflation was truly high, and he really would hike rates—that the 2022 bear market began. In the face of a bubble, jump in and enjoy the ride, but make sure you’re sitting closest to the exit.
2025 is destined to be a volatile year, requiring full digestion of the gains from the previous two years. Thus, higher personal discipline is required, so everyone should plan their position management carefully. Those who can maintain strict discipline might consider joining our community.
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