SignalPlus Macro Analysis (20240902): Seasonally Worst

Last week was relatively calm, with global stock markets generally returning to mid-term highs, while U.S. Treasuries closed at the lower end of the August range at the end of the month. Data provided support, with Q2 GDP revised up to 3.0%, initial jobless claims remaining stable, and PCE data confirming that inflation is gradually aligning with the Federal Reserve's long-term target.

Core PCE inflation rose by 0.16% month-on-month and 2.6% year-on-year, while personal spending data was quite healthy, increasing by 0.4% month-on-month. However, the strong spending was largely driven by a continued decline in the U.S. savings rate, which has now dropped to 2.9%, the lowest level since June 2022, and below pre-pandemic averages.

In fixed income, yields remained largely within a certain range over the past week. However, the closely watched U.S. Treasury yield curve (2/10 s) is now just a step away from "inversion" after two years in negative territory, which is a strong signal indicating that macro participants fully recognize the Federal Reserve is about to begin a new round of easing. Long-term bond prices are under pressure due to poor supply digestion, and with inflation declining, pricing in September shows about a 33% chance of a 50 basis point rate cut.

In the stock market, after a decline in early August, bullish investors and mutual fund investors made large-scale purchases, and investors remain confident in the stock market, with SPX corporate earnings continuing to grow. Furthermore, the fundamentals remain very healthy; despite various uncertainties in the economy, companies are still finding ways to maintain profitability, with already high EBIT and net profit margins continuing to rise.

That said, from a seasonal perspective, September is typically the worst-performing month for the U.S. stock market throughout the year. Will this year be different? Will potential catalysts come from weak non-farm payroll data in early September? Or from the market's resistance to the Harris/Walz aggressive tax increase plan? Or could inflation unexpectedly rebound? This month is expected to be very busy starting with the employment data release this Friday.

Cryptocurrency had a quiet week, but performance remains disappointing, with major currencies and altcoins down about 10%. Additionally, the arrest of TG founder Durov in France and the SEC's latest actions against Opensea have dampened overall sentiment, compounded by continued outflows from BTC and ETH ETFs (with outflows occurring on 10 of the past 12 days), leaving the market with little to celebrate.

Ethereum's structural issues are hard to articulate (unattractive L1 token economics, excessive diffusion of L2, divergence in protocol direction between core foundation members and users, and recent lack of breakthroughs in DeFi), and the entire cryptocurrency ecosystem is facing liquidity challenges (lack of exit liquidity). The busy token generation activities in the fourth quarter (such as Eigenlayer, ZCircuit, Babylon, Solv, Soneium, Scroll, Berachan, Monad, Gross, Elixir, Hyperliquid, Dolomite, Polymarkets, Symbiotic, Solayer, etc.) seem to make the situation even more difficult.

Short-term conditions may not improve, so please be sure to prioritize safety while trading!