I. Performance and Valuation of Global Equity Indices
Source: Bloomberg, Tiger Asset Management
II. Key Market Themes
i. U.S. Stocks: Macro Conditions Improve, Yet Uncertainties Remain Undiminished
Over the past week, U.S. stocks gapped up at Monday’s open following unexpectedly positive developments in China-U.S. trade talks, then climbed steadily in subsequent sessions. Macro data released this week contained no negative surprises, with some even slightly exceeding expectations. The April core CPI rose 0.2% month-on-month (MoM), while the core PPI declined 0.4% MoM — both below prior readings but better than forecast. Additionally, April retail sales edged up 0.1% MoM, marginally exceeding expectations. These figures suggest easing headline inflation and resilient economic activity, alleviating earlier market fears of stagflation. The latest Bank of America Global Fund Manager Survey reveals that a soft landing for the global economy has regained consensus, with approximately 61% of managers now expecting this scenario within the next 12 months (double last month’s proportion). However, the share predicting a "no landing" outcome remains low, with current positioning resembling the 2023 pattern.
Despite the seemingly positive macro data, we caution against excessive optimism. First, while the 0.1% MoM increase in April retail sales marginally exceeded expectations, it reflects a notable slowdown compared to March’s growth. More critically, core retail sales (a key GDP component) declined 0.2% MoM, sharply contrasting with market expectations of a 0.3% rise. This suggests renewed uncertainty for U.S. Q2 GDP performance.
Second, while the PPI came in significantly below expectations, the cooling was primarily driven by the services sector. The goods sector (excluding food and energy) continues to see accelerating upward momentum, with a 2.5% year-on-year increase now approaching 2023 levels. This indicates that tariffs are already impacting producers. Historical patterns suggest tariff effects typically take 2-3 months to filter through to consumer prices. Thus, even with the April CPI/PPI moderation, concerns over tariff-driven inflation remain unresolved, making the May and June data critical focal points for markets. Consequently, both inflation dynamics and consumption trends warrant continued vigilance.
On another front, Federal Reserve Chair Jerome Powell announced on May 15 that the central bank has initiated its five-year monetary policy framework review. In essence, he signaled that the current macroeconomic environment — marked by elevated rates and persistent inflation — diverges fundamentally from the low-rate, low-inflation regime of five years ago, necessitating targeted revisions to the Fed’s operational playbook. Key discussion points include:
-
Inflation Framework Updates：Powell signaled that the "average inflation targeting" outlined in the 2020 framework is no longer operative, with multiple officials advocating a return to a "flexible and symmetric" target. This implies the Fed will prioritize a harder 2% focus over tolerance for temporary deviations.
-
Employment Mandate Recalibration：The 2020 emphasis on "employment shortfalls" (prioritizing job creation) is being revised to "employment deviations", signaling a shift from solely addressing underemployment to also monitoring risks of a wage-price spiral (i.e., overheating labor markets).
-
Additional Policy Anchors：Reaffirmed dual mandate of price stability and maximum employment;2% inflation anchor remains non-negotiable;"Lower-for-longer" rates are obsolete — future policy cycles will see a higher effective lower bound (ELB).
In summary, the remarks struck a neutral-to-hawkish tilt yet remained broadly within existing policy frameworks, eliciting muted reactions in equity markets. Current pricing shows institutions have further priced out rate cuts, with the consensus now coalescing around a potential easing cycle starting in September or even year-end 2024.
Meanwhile, after U.S. markets closed on the 16th, Moody’s downgraded the U.S. long-term credit rating from Aaa to Aa1, stripping the nation of its last remaining AAA sovereign rating. Moody’s cited persistent fiscal deficits, unsustainable debt servicing costs, and political gridlock as key drivers. Intriguingly, while criticizing fiscal deterioration, the agency praised the Fed’s policy credibility and upgraded its U.S. outlook from Negative to Stable — signaling concerns over fiscal health but no material doubts about monetary sovereignty.The downgrade initially triggered a 1%+ after-hours selloff in U.S. equities, yet near-term impact remains contained. Under current global regulatory frameworks, central banks, sovereign wealth funds, and commercial banks can continue holding U.S. Treasuries as long as they remain A-range rated (Aa1 still qualifies).Structurally, however, this adds pressure to Treasury markets: the 30-year yield recently rebreached 5%, reflecting growing unease. With the Fed holding rates higher for longer and long-term borrowing costs grinding upward, debt sustainability efforts — particularly for administrations prioritizing deficit reduction — face mounting challenges.
At the start of 2024, we identified three key uncertainties for U.S. equities: tariffs, Fed rate cuts, and political risks. We now view diminished political uncertainty as being supplanted by fiscal policy ambiguity. While former President Trump’s Tax Cut Bill narrowly passed the House by a one-vote margin over the weekend, its ultimate enactment remains in serious doubt. Despite ongoing equity market gains, underlying risks remain undiminished. For Q2, tariffs and fiscal policy dynamics — rather than rate cut timing — are emerging as the twin dominant narratives for U.S. equities.
Disclaimer
1. The information contained in this document is for reference only and does not constitute any financial advice or a transaction offer, solicitation, suggestion, recommendation or any guarantee for any financial product, strategy or service. You should make your own investment decisions and bear the risk of investment responsibility independently.
2. The content of this document is based on reliable data sources that the staff believed to be reliable at the time of production. The Tiger Investment Research team may adjust without prior notice. The Tiger Investment Research team does not guarantee the accuracy, reliability or completeness of the content of this document, and does not assume any responsibility for any transactions arising from the content of this article and its derivative consequences.
3. This document is confidential and non-public and can only be accessed by professionals with corresponding risk-taking capabilities and preferences. Without the prior consent of Tiger, no one may copy or distribute it in any form.
Comments