U.S. Stock Market Outlook | Three Major Index Futures Decline, U.S. Treasury Yields and Oil Prices Rise, Most Tech Stocks Weaken

Pre-Market Market Trends

1. As of August 18 (Tuesday), U.S. stock index futures are all down before the market opens. As of the time of writing, Dow futures are down 0.02%, S&P 500 futures are down 0.36%, and Nasdaq futures are down 1.06%.

1. As of the time of writing, the German DAX index is down 0.37%, the UK FTSE 100 index is up 0.13%, the French CAC 40 index is down 0.47%, and the Euro Stoxx 50 index is down 0.43%.

1. As of the time of writing, WTI crude oil is up 0.55%, priced at $84.20 per barrel. Brent crude oil is up 0.21%, priced at $91.06 per barrel.

Market News

Middle East situation intensifies! The U.S. and Iran both "do not seek to extend" the memorandum of understanding. As the 60-day negotiation window set by the U.S.-Iran memorandum of understanding expires, neither side has initiated formal negotiations or reached a new agreement. U.S. President Trump stated that he has no intention of extending this temporary ceasefire agreement and threatened to bomb Oman, claiming that this Gulf country might hinder the peace agreement. A senior Iranian official recently stated in an interview that Iran has set a deadline of several weeks for the U.S. to fully implement the U.S.-Iran memorandum of understanding, and Iran will not wait indefinitely for the U.S. to continue its maritime blockade. The official indicated that due to the "stalemate in efforts to reach a permanent ceasefire agreement with the U.S.," Iran has decided to shift its policy "from defensive to fully offensive."

Bank of America fund manager survey: Stock holdings reach a nearly five-year high, but Hartnett calls for "withdrawal." The latest global fund manager survey from Bank of America shows that bullish global investors have raised their stock holdings to the highest level in nearly five years, with very few bears. The team of Bank of America strategists led by Michael Hartnett stated that a net 56% of surveyed fund managers are overweight in stocks, the highest level since November 2021, while the cash allocation ratio has dropped to a "very low" 3.5%. Hartnett's team noted, "The market consensus believes that the macro economy will not land, the Federal Reserve will not raise interest rates, AI capital expenditures will not be cut, the Democrats will not win a landslide, and bears will not gain the upper hand." However, they also warned that the current positioning signals "continue to suggest that investors should retreat or rotate within risk assets, rather than increase positions," and reiterated the recent view of shifting towards more defensive sectors Sticky inflation, AI debt, and fiscal disorder are strangling each other, leading to rising U.S. Treasury yields. The rise in oil prices due to prolonged wars may further exacerbate domestic price pressures in the U.S. and strengthen the rationale for the Federal Reserve to raise interest rates. Meanwhile, the surge in corporate borrowing driven by the global AI computing investment boom has led Washington and Silicon Valley to compete for the same limited pool of capital. As of the time of writing, the "anchor of global asset pricing"—the 10-year U.S. Treasury yield—stands at 4.744%, while the 30-year U.S. Treasury yield is at 5.331%. Once U.S. Treasury yields continue to rise, the impact will extend beyond bonds—valuations of tech stocks, corporate financing, carry trades, cross-border capital flows, and even emerging market risk appetite may all be repriced.

U.S. debt may exceed $40 trillion months ahead of schedule. Reports indicate that U.S. debt may surpass the $40 trillion mark this week, months earlier than previously predicted, partly due to the overturning of Trump's tariff policies, which resulted in billions of dollars in lost fiscal revenue. The loss of fiscal revenue has forced the U.S. Treasury to accelerate borrowing to cover national expenditures. Six months ago, the Congressional Budget Office predicted that the total U.S. national debt would reach $39.4 trillion this fiscal year. However, on Monday, data released by the Treasury showed that the national debt had reached $39.9 trillion and continues to grow. The accelerated accumulation of debt suggests that the next deadline for raising the statutory borrowing limit may also come sooner. Just last year, Congress set the debt ceiling at $41.1 trillion. Budget analysts indicate that borrowing could reach this threshold as early as the beginning of next year, forcing lawmakers to either suspend the debt ceiling or raise it again to avoid the risk of a damaging default.

Has the Federal Reserve's policy actually become "easier"? A new model of neutral interest rates from the San Francisco Fed provides theoretical ammunition for hawks. A study released by the San Francisco Fed on Monday shows that if the mid-term estimate of the so-called neutral interest rate is used as a benchmark—where borrowing costs neither suppress nor stimulate the economy—then the current policy rate of the Federal Reserve is likely in a loose state. This conclusion contrasts with the judgment of most current Federal Reserve policymakers, who believe that the current monetary policy remains restrictive or may already be at a neutral level. This conclusion also conflicts with the picture painted by Federal Reserve policymakers regarding their estimates of the long-term neutral interest rate; according to these estimates, the current benchmark rate range of 3.50%—3.75% may be about 0.5 percentage points higher than the neutral level. Federal Reserve policymakers often use neutral interest rate estimates to help determine whether monetary policy is tight or loose and decide whether to raise or lower interest rates accordingly.

Individual Stock News

Most U.S. tech stocks are down in pre-market trading. As of the time of writing on Tuesday, in pre-market trading, Western Digital (WDC.US) and Seagate Technology (STX.US) fell over 5%, SK Hynix (SKHY.US), SanDisk (SNDK.US), Intel (INTC.US), and Micron Technology (MU.US) fell over 4%, ASML (ASML.US) and AMD (AMD.US) fell over 3%, Oracle (ORCL.US), TSMC (TSM.US), and SpaceX (SPCX.US) fell over 2%, while NVIDIA (NVDA.US) fell nearly 2% Optical communication stocks fell broadly, with Lumentum (LITE.US) down nearly 6%, Marvell Technology (MRVL.US) and Coherent (COHR.US) down over 5%.

Tesla (TSLA.US) Cybercab is set to launch in Austin this month, with employees being the first "test riders." According to technology media citing informed sources, Tesla has informed its internal employees that it is intensively preparing for the public release of the Cybercab, planning to launch it first in Austin, Texas, as early as this month. The Cybercab is a model specifically designed for autonomous driving, eliminating the steering wheel and pedals, and is seen as the core vehicle of the company's Robotaxi strategy. Tesla plans to deploy this model on a large scale within its autonomous ride-hailing service network. Tesla has informed employees that the Cybercab will first be available for ride experiences on public roads for internal staff, and within a few days, the model will officially join Austin's Robotaxi service fleet. In recent weeks, the company has conducted several preparatory activities, including test drives, providing ride experiences on private roads for employees, and conducting training drills in collaboration with local emergency response departments.

Home improvement spending remains resilient amid a sluggish housing market! Home Depot (HD.US) Q2 performance exceeded expectations, maintaining its full-year sales guidance but warning of ongoing uncertainties. Home Depot's second-quarter results surpassed market expectations, indicating that despite high borrowing and housing costs, consumer spending on home improvement projects remains resilient. The financial report shows that for the second quarter ending August 2, Home Depot's sales increased by 5.7% year-over-year to $47.86 billion, better than the average analyst expectation of $47.24 billion; same-store sales grew by 1.7%, the highest growth rate since the end of 2022, far exceeding the average analyst expectation of 0.94%; adjusted earnings per share were $4.92, better than the average analyst expectation of $4.73. The company reiterated its full-year sales guidance but simultaneously warned that due to concerns about housing affordability, borrowing costs, and consumer uncertainty, the broader real estate market has yet to recover, and uncertainties remain. As of the time of publication, Home Depot's stock rose nearly 2% in pre-market trading on Tuesday.

Optical communication ODM leader Fabrinet (FN.US) Q4 revenue increased by 45% year-over-year to a record high, with data center revenue exceeding 50% for the first time. The financial report shows that Fabrinet achieved revenue of $1.316 billion in the fourth fiscal quarter, a 45% year-over-year increase, exceeding market expectations of approximately $1.27 billion, and setting a revenue record for the 12th consecutive quarter; non-GAAP earnings per share were $4.10, higher than the average analyst expectation of $3.81. Data center revenue reached $669 million, accounting for 51% of total revenue. This segment includes products such as optical transceivers, data center interconnects, high-performance computing components, silicon photonics, and co-packaged optics (CPO), primarily benefiting from demand for AI infrastructure and hyperscale data center construction. The company also provided an optimistic guidance for the first quarter of fiscal year 2027. Despite the financial report and guidance exceeding expectations, as of the time of publication, the stock fell over 9% in pre-market trading on Tuesday Some analyses suggest that the stock is relatively overvalued. Investors may be reassessing valuations, especially since high growth expectations are fully reflected in the stock price.

Earnings exceed expectations! BHP (BHP.US) reports a 30% increase in annual profit, with copper revenue surpassing iron ore for the first time. Due to booming commodity prices driving up earnings, BHP's profit grew by nearly one-third, and copper's annual revenue exceeded that of iron ore for the first time. The world's largest mining company reported revenue of $58.8 billion for the 12 months ending in June, a 15% year-on-year increase, exceeding the expected $57.8 billion; net profit attributable to shareholders rose to $13.2 billion, a 30% year-on-year increase, breaking analysts' expectations of $12.6 billion. The copper business contributed more than half of the company's underlying EBITDA for the first time and generated substantial free cash flow, indicating that its copper business growth has become self-sustaining.

Important Economic Data and Event Forecast

At 21:15 Beijing time, U.S. July industrial production month-on-month rate

Earnings Forecast

Wednesday morning: Keysight Technologies (KEYS.US), ZTO Express (ZTO.US), Lufax (LU.US)

Wednesday pre-market: Lowe's (LOW.US), Target (TGT.US), Analog Devices (ADI.US), TJX Companies (TJX.US), Manbang Group (YMM.US), Kingsoft Cloud (KC.US), Weibo (WB.US)