- The US stock market's S&P and Nasdaq recorded the largest quarterly gains since 2020, with strong earnings prospects effectively offsetting the disruptions from Middle East geopolitical conflicts.
- Although technology stocks were under pressure in June due to concerns over high valuations and AI spending, the semiconductor sector's rebound has reignited bullish momentum.
- Volatile oil prices have intensified concerns about inflation persistence, with the market already pricing in the risk of interest rate hikes. Major banks suggest that funds may rotate towards cyclical value sectors in the second half of the year.
Quarterly Performance Hits Six-Year High
On Tuesday, the US stock market's S&P 500 Index (SPX) rose 0.79% to 7499.36 points, and the Nasdaq Index (IXIC) increased by 1.52% to 26213.72 points, both marking the largest single-quarter gains since 2020. The Dow Jones Industrial Index (DJI) rose about 13% for the quarter, setting a new closing high. Despite a high-level pullback in the technology sector in June, the strong first-quarter earnings led to a performance that significantly exceeded market expectations for the entire quarter.
Technology Leads Gains and Breadth Recovery
On the trading floor, the Philadelphia Semiconductor Index (SOX) surged 3.92%, significantly leading the gains. The ratio of advancing to declining stocks on both the NYSE and Nasdaq exceeded 1 to 1, indicating that the overall market breadth remains healthy. However, there is still divergence among individual stocks, as Nike (NKE:US) saw its stock price fall by about 2% after releasing its quarterly earnings report, suggesting that the market is more stringent in assessing the performance guidance of non-tech leading stocks.
Geopolitical Situation and Inflation Pricing
Geopolitical uncertainties continue to challenge the macro environment. Although the US and Iran signed a memorandum of understanding, weekend skirmishes and stalled high-level talks in Doha have made it difficult for geopolitical premiums to fully dissipate. Volatile oil prices have heightened market concerns about inflation and tightening policies. Data from the London Stock Exchange Group (LSEG) shows that traders have begun pricing in at least one interest rate hike by the Federal Reserve (Fed) by the end of 2026.
Style Rotation and Market Outlook
Wealth management firm Wealthspire Advisors noted that the US economy and corporate earnings remain robust. As we enter the second half of the year, if core inflation rebounds, market pricing may be reassessed. BofA strategists suggest that given the valuation pressures on tech stocks, cyclical and value sectors such as energy and finance may be better allocation choices in the future.
