- After a strong second quarter, U.S. stocks saw significant gains, with the S&P 500 and Nasdaq indices rising by approximately 14% and 20%, respectively, and the Philadelphia Semiconductor Index surging over 80%. However, Wall Street institutions have recently issued frequent warnings of a potential pullback.
- Despite a 23.1% year-over-year increase in corporate earnings estimates providing fundamental support, the market is facing end-of-quarter rebalancing pressure, with some sovereign and pension funds potentially shifting towards underperforming long-term U.S. bonds.
- The appointment of the new Federal Reserve Chairman, Kevin Warsh, brings policy uncertainty, combined with the tripling of leveraged long semiconductor ETFs to nearly $34 billion, speculative risks are accumulating, which could trigger a 10% to 20% valuation correction in U.S. stocks.
Earnings Resilient but Expectations High
The S&P 500's second-quarter earnings are expected to grow significantly year-over-year, with analysts continuously revising expectations upwards. Goldman Sachs noted that the index's gains over the past year have been primarily driven by earnings rather than valuation expansion. If earnings reports fail to exceed high expectations, the upside potential will be limited.
Federal Reserve Changes Increase Policy Uncertainty
Following the meeting chaired by new Federal Reserve Chairman Kevin Warsh, there is significant market disagreement over his policy path. Bank of America anticipates three rate hikes by the end of the year, while some institutions believe there will be no further hikes. The unclear forward guidance has become a key variable.
Concentration of Leverage Amplifies Potential Volatility
Speculative sentiment is heating up in technology sectors like semiconductors, with the size of triple-leveraged long semiconductor ETFs doubling to nearly $34 billion within a year. Analysts suggest that if negative news hits, the concentrated short-term leveraged funds could exponentially increase selling pressure.
End-of-Quarter Rebalancing and Asset Pressure
As stocks have outperformed bonds, large institutions face asset rebalancing needs at the end of the quarter. With long-term U.S. bonds underperforming, sovereign funds and pensions may choose to liquidate some stocks and increase holdings in U.S. bonds, exerting short-term pressure on the stock market.
