Written by: Trend Research

On the last day of the second quarter, employment data remained resilient, coupled with the semiconductor sector's near doubling in gains this year, the S&P 500 and NASDAQ both recorded their best quarterly performance since 2020, while the Dow Jones reached a new historical high during the day.

Market Performance

The S&P 500 closed up 0.79% at 7499.36 points, down 1.06% in June, and up 14.87% in the second quarter. The Dow Jones rose 0.26% to 52319.20 points, up 12.90% in the second quarter. The NASDAQ rose 1.52% to 26213.72 points, down 2.81% in June, and up 21.41% in the second quarter. The Russell 2000 hovered around 3010 points, with a cumulative increase of about 21% in the second quarter, marking the best first half performance since 1991, with signals of small-cap stocks strengthening relative to large-cap stocks confirmed further at the quarter's end.

Funds clearly concentrated on AI hardware on the last day of the quarter, with the semiconductor index surging nearly 4% in a single day, pushing the cumulative gain for the second quarter to 88%, which is the strongest quarterly gain on record for this index. Utilities, consumer staples, and real estate were sold off, with a decline between 1.5% and 2.1%; the source of funds for this rally shifted from defensive positions to growth positions, and signs of a broad market rally were not apparent.

At the individual stock level, Apple rose by 2.7% in a single day, leading the seven tech giants to strengthen collectively; NAND flash stock SanDisk surged nearly 11% in a single day, the highest among S&P constituents; Nike faced selling after its earnings report, falling 2.68%.

The bond market tightened simultaneously, with the 10-year U.S. Treasury yield closing up 5.72 basis points to 4.4316%, briefly hitting 4.463% during the day; the two-year yield rose 4.11 basis points to 4.1455%.

Precious metals showed a divergence, with spot gold falling 0.18% to $4008.98 per ounce, down 14.31% in the second quarter; silver, on the other hand, rose 0.62% to $58.619 per ounce. Oil continued its downward trend, with WTI down 1.77% to $69.50 per barrel, down 14.86% in the second quarter. Cryptocurrency assets weakened simultaneously, with Bitcoin down 2.5%, briefly dipping to around $58,200, and Ethereum falling 2.6%.

Macroeconomics and Outlook

The labor market does not leave much room for interest rate cut expectations. In May, the number of job vacancies in the U.S. rose to 7.594 million, nearly 300,000 higher than market expectations, with the number of unemployed people and job vacancies basically at a one-to-one ratio; the Federal Reserve has been closely monitoring this ratio to see how tight the labor supply and demand is.

This latest ruling from the Supreme Court significantly impacts the Federal Reserve's independence. The court voted 5:4 to block the White House from firing Federal Reserve Governor Cook, meaning that new Chair Waller's attempt to change the monetary policy direction through personnel changes has essentially been blocked.

There are no new developments on the geopolitical front; Qatar denied arranging U.S.-Iran meetings at the Doha level, while Israel launched a new round of raids in the West Bank.

There are two completely opposite judgments regarding NVIDIA. SemiAnalysis stated that the Rubin Ultra chip was cut within three months of its release, and its market share is being eroded by competitors, while also saying that the supply bottleneck for HBM4 has been resolved and that data center revenues in the second half may exceed market expectations by 20%, with both bullish and bearish signals appearing in the same report.

Tonight’s schedule is quite full, as the final manufacturing PMI for June will be released successively for the five economies of the U.S., China, Europe, Japan, and the UK. The U.S. will also have ADP employment and EIA crude oil inventory data, with Federal Reserve Chair Waller and several central bank governors making public speeches. Thursday's U.S. non-farm payrolls report will be the real highlight. Additionally, during the U.S. holiday on July 4, liquidity is expected to be thin, and if the yen continues to weaken, it is possible that Japanese authorities may intervene unexpectedly, which could temporarily amplify cross-asset volatility, a point worth noting.

Trend Perspective

The 88% gain of the semiconductor index in the second quarter has already exhausted a considerable part of future expectations. Morgan Stanley strategists compared it to the white-hot market before a downturn, which is not an alarmist statement. The logic supporting the continuation of this trend is that employment data remains robust and profit growth has not been fully priced in, while the risk lies in the emergence of signals for rotation; the selling off of defensive sectors and real estate and the relative strength of small-cap stocks against large-cap stocks all reflect the same rotation logic. The first week after the quarter switch is more suitable for validating whether momentum can continue; chasing high momentum has a low cost-performance ratio.