Last week, the Dow Jones Industrial Average (DJIA) shook off its June doldrums, while the stock fluctuations of NVIDIA, the AI industry's leading company, after topping the market value list, not only dragged down the technology sector but also triggered external assessments of the industry's prospects and valuation rationality, with some funds showing a willingness to take profits.

In the coming week, as Micron Technology's earnings report and the Personal Consumption Expenditure (PCE) data are released, market volatility risks remain considerable.

The suspense of a September rate cut still lingers.

Last week, the main economic data released by the United States were mixed. As an important barometer of consumer spending, the U.S. retail sales in May only increased by 0.1%, with the April data revised to negative, indicating that Americans are feeling the impact of persistent inflation and high interest rates, forcing households to prioritize necessities and cut discretionary spending.

As an important leading indicator, the Conference Board's Leading Economic Index (LEI) for May fell to 101.2, marking a decline for the third consecutive month, mainly driven by a decrease in new orders, weak consumer expectations for future business conditions, and a decline in building permits. Due to tight supply pushing up housing prices and high mortgage rates, real estate market data has been under pressure throughout the month.

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However, the significant rebound in the S&P Global Purchasing Managers' Index (PMI) in June may suggest a warming trend in business activity at the end of the second quarter. This month, the composite PMI rose to a 26-month high, and companies reported some easing of price pressures, reigniting hopes for a soft economic landing.

Bob Schwartz, a senior economist at Oxford Economics, told First Financial Daily that the U.S. economy remains resilient overall, with the direction of retail sales indicating that actual consumer spending is likely to slow down gradually in the second quarter, while service sector spending maintains a good growth trend.

Medium to long-term U.S. Treasury yields fluctuated narrowly, with the 2-year U.S. Treasury bond, closely related to interest rate expectations, and the benchmark 10-year U.S. Treasury bond rising nearly 5 basis points over the past week. Federal funds rate futures show that the probability of a Federal Reserve rate cut in September hovers around 60%, with the market still watching for the prospect of two rate cuts this year. CIBC and Capital Economics released reports last week, expecting the Federal Reserve to start an easing cycle in September.

Federal Reserve officials also frequently emphasized a data-dependent policy stance in their speeches last week. Federal Reserve Governor Kugler said that the Federal Open Market Committee (FOMC) could cut rates later in 2024, but further evidence is needed to prove that the improvement in inflation continues. Richmond Fed President Barkin said he is open to policy decisions based on new data.

Schwartz told First Financial Daily that the disinflation trend seems to be back on track, and the upcoming May PCE data will be very crucial. He believes that if the indicator continues the performance of the previous Consumer Price Index (CPI), coupled with the support of several price reports before the September meeting, a rate cut at that time will be a high probability event. However, Schwartz emphasized that the direction of the labor market will be a key influencing factor.Capital Exits Focus on Volatility Risks

Last week, the U.S. stock market saw a shift in style, with cyclical sectors represented by the Dow Jones Industrial Average (DJIA) posting the largest weekly gain in nearly two months, while technology stocks, driven by the artificial intelligence (AI) craze, showed a pattern of rising and then falling.

Since May, a new round of market movements has been primarily driven by Nvidia and related technology heavyweights. The latest Bank of America fund manager survey indicates that the trade of long technology stocks has maintained its position as the most crowded trade for the 15th consecutive month.

However, after Nvidia topped the global market value list, the company's stock value evaporated by over $200 billion in two days. Factors such as share reductions by Nvidia CEO Jensen Huang and other executives, external questioning of valuation rationality, and the expiration and delivery of options have intensified stock price volatility, leading to selling pressure on related sectors.

Emily Roland, co-chief investment strategist at John Hancock Investment Management, stated, "Technology stocks continue to be the focus. I can't remember a stock that has been so influential in the market; Nvidia is truly a key driver in determining market direction." She believes that although it is not yet clear whether the AI-driven rebound has reached its limit, even a company like Nvidia, which is large enough to sway the market, shows signs that its upward momentum may be slowing down.

Capital flow data indicates that uncertainty over Federal Reserve policy has led investors to seek safety. Data provided by the London Stock Exchange Group (LSEG) to First Financial Daily reporters shows that after selling $21.54 billion the previous week, U.S. stock funds experienced a reduction of $8.37 billion last week, with large-cap stock funds seeing a net outflow of $4.88 billion. Concurrently, money market funds saw net sales of $21 billion, also indicating a cooling of risk appetite.

Charles Schwab, in its market outlook, wrote that the deterioration of technical indicators for technology stocks suggests that recent gains require some consolidation. Behind Nvidia's adjustment, the Relative Strength Index (RSI) reached a severely overbought range, followed by a 7% intraday stock price fluctuation. Of course, it is still too early to determine whether the technology stock rally has ended, but some factors could act as catalysts, such as a shake in investor confidence and funds that bought high choosing to cut losses.

Charles Schwab believes that the focus for the coming week will be whether the adjustment in technology stocks has ended, and if they continue to weaken, whether there will be a rotation of funds to other underperforming areas of the market, with recent signs of capital entering the energy and financial sectors. The report states that Micron Technology's performance is expected to determine whether the AI craze can make a comeback, and the performance of the inflation indicator PCE will also affect market risk appetite, with volatility remaining a potential source of pressure.