CEO House View | Three Final Stages Before the Party is Over

The market has seen significant volatility in July, with a flurry of new highs in the first half of the month, including in the U.S., India and Taiwan, followed by subsequent pullbacks in the latter half.

These movements are consistent with the major signals of the market moving into the latter half of the upcycle, as highlighted in our June house view. These signals include market expectations, rotation, and liquidity. As earnings reports come out, overly optimistic market expectations have started to align with reality, a process that tends to increase stock price volatility. Meanwhile, sector rotation has continued, with the tech sector—the strongest performer in this bull run—experiencing the largest pullbacks. In contrast, the financials, real estate, and energy sectors have begun to post more substantial gains. Lastly, liquidity conditions are playing a more crucial role, with the U.S. dollar finally retreating and bonds on the rise. In commodities, gold has seen the most significant gains in response to policy easing across major central banks.

As we approach the final stretch of the bull market, the importance of liquidity will only grow. We forecasted in past house views that Q3 would see a shift from market gains driven by strong economic fundamentals to a scenario characterized by moderate economic growth, easing inflation, and central bank easing. This outlook has been supported by the data released in July.

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The most crucial chart for the month is probably the Beveridge curve, which is also featured in our recent article ...

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