U.S. Stock Market Preview | The three major stock index futures are mixed, TSMC's earnings greatly exceeded expectations but still faced sell-off

Pre-Market Market Trends

1. As of July 16 (Thursday), U.S. stock index futures showed mixed results before the market opened. As of the time of writing, Dow futures rose by 0.17%, S&P 500 futures fell by 0.26%, and Nasdaq futures dropped by 0.93%.

1. As of the time of writing, the German DAX index fell by 0.90%, the UK FTSE 100 index dropped by 0.19%, the French CAC 40 index decreased by 0.83%, and the Euro Stoxx 50 index fell by 0.56%.

1. As of the time of writing, WTI crude oil rose by 0.18%, priced at $79.74 per barrel. Brent crude oil fell by 0.08%, priced at $84.88 per barrel.

Market News

Extreme optimism becomes a shackle? The perfect "golden-haired girl" has arrived, but U.S. stocks are struggling to rise. Bullish investors in the stock market have become intoxicated by the beautiful scenario of the "golden-haired girl," pushing risk appetite to extreme highs, making it increasingly difficult to determine where the next upward momentum in the market will come from. Richard Privorotsky, a partner at Goldman Sachs, stated, "Whether the stock market can maintain its upward trend ultimately depends on earnings guidance and positioning levels, rather than the headlines themselves. Energy remains a key macro risk factor, but for now, the inflation environment is improving." Privorotsky pointed out that this earnings season is likely to deliver good results, as the banking sector has basically crossed the performance threshold, and ASML's earnings report shows that semiconductor capital expenditure demand remains healthy. "Like most AI-related stocks, the issue is no longer limited to the data itself, but whether this data is impressive enough relative to current positions," he added. A recent Bank of America fund manager survey showed that the cash holdings of professional investors have dropped to very low levels, while the bank's "bull-bear indicator" has also issued warning signals. Additionally, data from Deutsche Bank indicates that systematic strategies are currently heavily long, leaving little room for further incremental buying. Trend-following CTAs have pushed their positions in stocks to the upper end of historical ranges, at the 72nd percentile; while volatility-controlled funds have even more extreme positions, at the 91st percentile.

South Korea's central bank raises interest rates for the first time in three and a half years: AI chip boom drives policy shift, tightening cycle officially begins. On July 16, the Bank of Korea raised the policy rate from 2.50% to 2.75%, an increase of 25 basis points, marking the first rate hike since January 2023, in line with market expectations This move marks the official end of the continuous four-rate cut cycle since the end of 2024, and a new tightening cycle has begun. The root cause of this interest rate hike lies in a structural economic transformation driven by artificial intelligence. Economic growth has far exceeded expectations, with the South Korean government raising its GDP growth forecast for 2026 from 2.0% at the beginning of the year to 3.0% on July 14. If achieved, this would be the fastest growth rate since 2021. The nominal GDP growth rate is expected to reach 12.3%, the highest in 30 years since 1996. The International Monetary Fund had previously raised South Korea's growth forecast for 2026 to 2.6%, the largest increase among 30 major economies. The Bank of Korea has clearly stated that this chip cycle is fundamentally different from previous ones. In a report submitted to the National Assembly, the central bank indicated that the current expansion cycle, which began in March 2023, has lasted for 40 months, far exceeding the historical average of 29 months for five expansion cycles from 2000 to 2020. The fundamental driving force comes from competitive investments by global tech companies in anticipation of the AI industry ecosystem transformation, rather than traditional cyclical demand.

South Korea's regulators unleash a "combination punch" to cool the market! Raising margin requirements and urgently halting the listing of single-stock leveraged ETFs. South Korea will temporarily halt the new listing of single-stock leveraged exchange-traded funds (ETFs) to curb market volatility. Previously, the popularity of funds linked to Samsung Electronics and SK Hynix surged, causing significant market fluctuations. The Financial Services Commission (FSC) of South Korea stated in a statement on Thursday that the ban will remain in effect until market conditions stabilize. Regulators will also raise the minimum margin requirement for trading leveraged ETFs (i.e., the minimum balance required for cash accounts) from 10 million won to 30 million won (approximately $20,300), expected to take effect on August 5. These measures represent the most comprehensive efforts by the South Korean government to quell the retail trading frenzy so far. Previously, this trading frenzy had turned the $41 trillion stock market into one of the hottest and most volatile markets globally. These rules were announced following a meeting of regulators, Treasury officials, and the central bank governor, amid growing concerns about excessive market volatility triggered by leveraged ETFs linked to Samsung and SK Hynix.

IEA Director issues a "weeks" ultimatum: If the Strait of Hormuz remains closed, the global economy will face new shocks. Fatih Birol, the Director of the International Energy Agency (IEA), issued a stern warning on Wednesday at the Aspen Security Forum in Colorado: If the transportation disruptions in the Strait of Hormuz are not resolved within weeks, the global economy will face severe challenges again. Birol pointed out that the escalation of the US-Iran conflict has caused "market anxiety" and posed "huge uncertainties," with the transportation of crude oil, fertilizers, natural gas, and other goods through this critical waterway being severely threatened. "If the Strait of Hormuz continues to be closed, the global economy, including the Middle East, developing countries, and Asia, may face difficulties again," Birol emphasized, "The time window for resolving the crisis is measured in weeks, not months," and the strait must be "completely open, unconditionally open." After releasing domestic investment signals last week, Japan's finance minister stated that economic growth may support GPIF in reassessing asset allocation. Japan's Finance Minister Shunichi Suzuki made key remarks in the Diet on Thursday. She stated that the government's current policy shift is significantly enhancing Japan's potential growth rate, and this positive change will provide strong justification for the Government Pension Investment Fund (GPIF) to adjust its asset allocation and increase its domestic assets in future annual assessments. Suzuki pointed out that as the world's largest public pension fund, GPIF evaluates its investment portfolio in a timely and appropriate manner based on changes in macroeconomic assumptions each fiscal year. She emphasized that as government policies place a significant focus on expanding investments, Japan's economy is entering a critical structural turning point, and the increase in the potential growth rate should naturally become a core consideration factor for GPIF in reassessing its domestic and foreign asset allocation ratios.

Individual Stock News

"Buy the expectation, sell the fact" plays out again! TSMC (TSM.US) Q2 net profit surged 77% to a new high, but the stock price plummeted nearly 5%. Benefiting from strong global demand for artificial intelligence (AI) chips, TSMC (TSM.US) announced on Thursday a second-quarter profit that far exceeded expectations. Data shows that TSMC's Q2 revenue was NT$1.27 trillion (US$39.45 billion), a year-on-year increase of 36%, with market expectations at NT$1.264 trillion; net profit was NT$706.562 billion, a year-on-year increase of 77.4% and a quarter-on-quarter increase of 23.4%, with market expectations at NT$632.64 billion. This marks the fifth consecutive quarter that the world's largest chip foundry has set a historical net profit record. This performance is mainly attributed to the explosive growth in global AI infrastructure demand, driving strong orders for advanced process and packaging technologies. TSMC stated that advanced process technologies of 7nm and below accounted for 77% of total wafer revenue. TSMC currently expects capital expenditures to reach US$60 billion to US$64 billion in 2026, higher than the previous expectation of US$52 billion to US$56 billion. The company also expects revenue growth in US dollars to be slightly above 40%, higher than the previously forecasted 30% or more. However, after the earnings report was released, TSMC's stock price fell nearly 5% in pre-market trading, as some investors chose to take profits after the good news.

Eli Lilly (LLY.US) splashes out $3.8 billion to enter the psychedelic drug space! Acquires AtaiBeckley (ATAI.US) at a 26% premium. Eli Lilly (LLY.US) has agreed to acquire AtaiBeckley Inc. (ATAI.US) for up to $3.8 billion, highlighting the growing interest of large pharmaceutical companies in psychedelic drugs, which were once considered fringe. Eli Lilly will pay $6.75 per share in cash, and if drug development milestones are met, an additional payment of up to $2.50 per share will be made. The base price is 26% higher than AtaiBeckley's closing price on Wednesday Japan aims to build a "robot national team" plans to purchase 27,500 NVIDIA (NVDA.US) Rubin! The AI computing power super cycle moves from the cloud to "physical AI." The Japanese government, along with major Japanese companies, is promoting and forming an alliance—newly established company Noetra Corp plans to purchase 27,500 next-generation AI GPUs from NVIDIA. The plan is to build a super-large AI computing power infrastructure cluster through large-scale procurement of NVIDIA Rubin architecture AI GPUs, aimed at accelerating the construction of domestic robotic foundational AI models in Japan, as well as accelerating the creation of a large robot cluster led by the Japanese government, supported by policies, and gathering top enterprises.

The AI boom ignites demand for lithography machines! ASML plans to raise prices, TSMC says "no." According to media reports citing informed sources, ASML plans to increase the prices of its chip manufacturing equipment, which may lead to a disagreement with its largest customer, TSMC. Reports indicate that TSMC has opposed the price increase plan from the Dutch equipment manufacturer. It is said that ASML has recently discussed raising the prices of its extreme ultraviolet (EUV) lithography systems with TSMC. Additionally, ASML has informed some customers in recent weeks of a planned 10% price increase for its deep ultraviolet (DUV) lithography systems. However, TSMC has stated that ASML's most advanced high numerical aperture (High NA) extreme ultraviolet lithography machine costs over 350 million euros (approximately 410 million USD) per unit, which is too expensive for mass production, although TSMC is currently using it for research and development purposes.

Hardware and services see price hikes! Apple (AAPL.US) raises AppleCare+ monthly subscription price by 50 cents. Apple has slightly increased the subscription fees for its AppleCare+ service, marking another round of price hikes amid a global shortage of storage chips and multiple industry pressures. The monthly package price for AppleCare+ for Mac and iPad has risen by 50 cents, while the annual package price has increased by 5 USD. This price increase only applies to new users, while existing users will maintain the original pricing. This adjustment continues the trend of price increases by the tech giant. Last month, Apple raised the prices of the iPad, Mac, Vision Pro headset, HomePod smart speaker, and TV set-top box. The market expects that when Apple launches the new generation of models in September this year, it will also implement price increases for its most profitable iPhone product line.

A premium of 28% "bride-snatching"! Stripe and Advent International's $53.4 billion cash offer to acquire PayPal (PYPL.US). It has been confirmed that digital payment giant Stripe and private equity firm Advent International have jointly made a takeover offer for PayPal, valuing the deal at approximately $53.4 billion. According to informed sources, the acquirers proposed to buy the payment company for $60.50 per share in cash. The aforementioned sources stated that Stripe, Advent International, and Block collectively provided $17 billion in equity funding for this offer. Informed sources indicated that the PayPal board is expected to hold a meeting as early as July 20 to discuss the offer According to reports, the offer was submitted earlier this month and includes approximately $50 billion in committed bank loan financing, representing a premium of about 28% over PayPal's closing price on Tuesday.

UnitedHealth (UNH.US) significantly raises full-year guidance, exceeding expectations in earnings report that signals recovery. UnitedHealth has raised its full-year performance outlook and reported quarterly profits that far exceeded Wall Street expectations, helping to solidify the company's earnings recovery after a historic collapse. The earnings report showed that the company's second-quarter revenue was $112 billion, a year-over-year increase of 0.3%, exceeding expectations by $11.4 billion; adjusted earnings per share were $6.38, surpassing expectations by $1.46. The healthcare giant now expects adjusted earnings per share for this year to be between $19.50 and $20, a significant upward revision from the previous estimate of $18.25, and above analysts' expectations. As a key indicator of healthcare costs, its performance far outperformed Wall Street analysts' forecasts in a Bloomberg survey, and the quarterly profits exceeded the highest estimates. Group CFO Wayne DeVita stated that the new outlook will serve as a starting point for achieving profit growth at the company's historical target rate next year. For a long time, UnitedHealth has sought to achieve an annual earnings per share growth of 13% to 16%. He stated in an interview that more favorable healthcare cost data in the first half of this year has given the company confidence to raise its forecast.

GE Aerospace (GE.US) Q2 results exceed expectations, strong order growth, full-year guidance raised again. GE Aerospace's second-quarter earnings report showed earnings per share of $2.02 and revenue of $12.6 billion, both surpassing Wall Street expectations of $1.86 and $11.9 billion. The total new orders during the period reached $16.5 billion, exceeding revenue for the same period and representing a 17% increase year-over-year, highlighting strong market demand for its products and services. Looking ahead to 2026, the company expects revenue growth to be raised from the previous 10%–12% to the "high double-digit" range; the full-year earnings per share expectation has also been raised from the previous $7.10-$7.40 to $7.65-$7.85.

Multiple business segments progressing simultaneously, Abbott (ABT.US) Q2 results exceed expectations, profit forecast raised. Abbott delivered an earnings report in the second quarter that exceeded expectations, benefiting from continued improvement across most business segments, prompting the company to raise its profit guidance for 2026. Abbott stated in a release on Thursday that second-quarter sales were $12.6 billion, above the market forecast of $12.5 billion; adjusted earnings per share for the second quarter were $1.31, higher than the market forecast of $1.28. Looking ahead, the company expects adjusted earnings per share for this year to be between $5.45 and $5.60, with the midpoint of the guidance raised by 5 cents from previous estimates.

Important Economic Data and Event Forecasts

Beijing time 20:30: U.S. initial jobless claims for the week ending July 11, U.S. July Philadelphia Fed Manufacturing Index, U.S. June retail sales month-on-month.

Beijing time 22:00: U.S. June seasonally adjusted existing home sales index month-on-month Beijing time the next day at 00:30: 2026 FOMC voting member and Dallas Federal Reserve President Logan will deliver a speech.

Beijing time the next day at 01:25: 2028 FOMC voting member and Kansas Federal Reserve President Schmidt will deliver a speech.

Beijing time the next day at 07:00: Federal Reserve Vice Chairman Jefferson will speak on the economy and monetary policy.

Beijing time the next day at 09:00: U.S. President Trump will deliver a national address.

Earnings Forecast

Friday morning: Netflix (NFLX.US), Alcoa (AA.US)