Friday (July 31), during US trading hours, the US Department of Commerce released June Personal Consumption Expenditures (PCE) price index data that was全面低于预期 (comprehensive below expectations), with core PCE year-on-year growth falling to 2.3%, the lowest since early 2021. This key inflation data injected a strong dose of confidence into the market, with all three major indices opening higher and rising throughout the day. The S&P 500 index once broke through the 6,500-point psychological barrier,刷新盘中历史新高 (refreshing intraday historical highs). The Dow rose more than 250 points, and the Nasdaq also moved higher in tandem, with market risk appetite significantly improving.
PCE Data Interpretation: Inflation Decline Confirms "Soft Landing"
Data showed that US June PCE price index rose only 0.1% month-on-month and 2.4% year-on-year, below expectations of 2.5%; excluding food and energy, core PCE was flat month-on-month, with year-on-year growth falling from 2.6% in May to 2.3%. This report is the first major inflation data after the Fed's July meeting, and its mild performance was interpreted by the market as the "disinflation" process restarting, providing a strong basis for rate cut expectations in the second half of the year.
Fed Chair Powell has repeatedly stated that the Fed needs more data to confirm sustainable inflation decline before launching an easing cycle. Analysts pointed out that the continuous decline in core PCE for several months, with no acceleration in monthly环比 (month-on-month), has basically met the Fed's assessment framework of "inflation moving toward the 2% target." The CME FedWatch tool showed that the probability of a 25-basis-point rate cut in September rose from 68% before the data release to 84%, and the probability of cumulative 50-basis-point cuts by December also exceeded 70%.
Market Reaction: Three Major Indices Rally Together, Energy and Tech Soar
The cooling of inflation directly ignited enthusiasm for US stocks. As of 11:30 AM Eastern Time, the S&P 500 index was up 0.72% at 6,502.33; the Nasdaq Composite Index was up 0.66% at 20,884.12; and the Dow Jones Industrial Average was up 0.87% at 42,310.55. On the sector front, 9 of the 11 S&P 500 sectors were up, with the energy sector leading the gains with a 2.1% increase, followed by financial and industrial sectors.
The strength of energy stocks was mainly boosted by the rebound in international oil prices. On the news front, OPEC+ oil-producing countries reaffirmed at yesterday's informal meeting that they will flexibly adjust production policies, coupled with the US announcement of an additional purchase of 6 million barrels of strategic petroleum reserves, WTI crude oil futures rose 2.3% during the day to $86.7 per barrel. ExxonMobil (XOM) rose 3.2%, Chevron (CVX) rose 2.9%, and ConocoPhillips (COP) rose 3.8%, driving the sector higher.
Tech stocks were also active but showed clear differentiation. Advanced Micro Devices (AMD) surged 5.1% after earnings reports from multiple investment banks raised its target price, leading chip stocks; Microsoft (MSFT) and Alphabet (GOOGL) rose slightly. Meanwhile, Apple (AAPL) fell 1.2% intraday due to lower-than-expected "iPhone SE 5G" rumors, dragging down Nasdaq gains. Chinese concept stocks saw Pinduoduo (PDD) rise 4.5% stimulated by record-breaking "618" sales; Li Auto (LI) rose 3.7% due to better-than-expected June deliveries.
Sector Rotation and Capital Flows: Cyclical Sectors Gain Favor
With cooling inflation and rate cut expectations, capital has clearly flowed from defensive sectors to cyclical and growth sectors. The market fear index VIX fell 7.8% during the day to 14.32, at a three-month low, showing rising market optimism. According to FactSet data, the three cyclical sectors—energy, industrial, and materials—had combined net inflows of $8.6 billion in the past five days, while defensive sectors like utilities and healthcare recorded net outflows.
"The main logic of this market rally is 'data supports rate cuts, earnings support valuations.'" Paul Hickey, chief US equity strategist at Bank of America, said in a research report. "In addition to tech giants, the S&P 500 equal-weight index rose 1.2% this week, outperforming the market-cap-weighted index, indicating that the market's upside foundation is spreading from a few tech stocks to broader sectors." This momentum switch helps improve the sustainability of the rally.
Month-End Close and Outlook: Guard Against Overbought Risks
Today is the last trading day of July, and so far the S&P 500 has gained 3.4% for the month, the Nasdaq is up 4.2%, and the Dow is up 2.8%. If the gains hold at close, the Nasdaq will record five consecutive months of gains, and the S&P 500 will achieve its longest winning streak since 2021. Seasonal data shows that August is typically one of the weakest months for US stocks, but history also shows that in the six months before the first Fed rate cut, stocks are likely to maintain an upward trend.
However, after the inflation data was released, market focus will shift to next week's July non-farm employment report and ISM manufacturing PMI. If the job market weakens simultaneously, it may further strengthen the necessity of rate cuts, but if economic data is too strong, it may reignite "no landing" concerns. Goldman Sachs' trading team reminded in this morning's report that although the short-term trend is positive, technical indicators show the S&P 500 has entered an "overbought" zone, with the 14-day relative strength index (RSI) reaching 71.4, suggesting short-term correction risks are accumulating. Investors are advised to reasonably control positions and use pullbacks to gradually position for quality stocks.
The US options market also showed significant activity, with call option volume for the S&P 500 surging 40% above the 20-day average, with open interest in August call options at the 6,600 strike price significantly rising, showing option traders are betting on the index continuing to rise before mid-August. It is worth noting that this Friday (August 1) will see a batch of tech and energy stocks release earnings, including Meta, Amazon, and Chevron, and the performance of these heavyweight stocks may become the key variable determining the short-term market direction.
In summary, the PCE data temporarily eliminated market concerns about inflation rebounding, and the rate cut trading logic was strengthened, with US stocks maintaining a strong short-term oscillation pattern. However, investors also need to guard against profit-taking pressure after data realization. It is recommended to closely follow next week's non-farm data and earnings progress, and flexibly adjust portfolio structure. This column will continue to track US market conditions in real-time, capturing every moment of market movement for you.
