Source: Sina US Stocks On the evening of the 20th Beijing time, the US stocks opened mixed on Thursday, and then the three major indexes rose slightly. Nvidia hit another new high and consolidated its position as the largest market cap company in the US stock market. Initial jobless claims in the United States last week were higher than expected, and real estate and manufacturing indexes were below expectations. Until the manuscript was submitted, the S&P 500 index rose 0.29% to break through 5500 points, the Nasdaq Composite Index rose 0.37%, and the Dow Jones Index rose 0.13%. The US stock market was closed on Wednesday due to the June holiday (Juneteenth). On Tuesday, the S&P 500 index and the Nasdaq both set new historical highs. The US stock market is expected to record gains this week. The S&P 500 index set its 31st new high this year on Tuesday. Due to the continued AI craze and the resilience of economic growth, it is expected to continue to support corporate profits, especially in the technology sector. Nvidia's stock price hit another new high. The AI darling and chip maker surpassed Microsoft last Tuesday and became the world's most valuable company. Against the background of the continued AI craze boosting the stock market, Nvidia's stock price has risen 174% from 2024 to date. As Nvidia consolidates its position as a thriving market leader in the AI theme market, its market value has surpassed that of Apple in early June. "Nvidia is still the most important stock in the world," said Chris Weston, head of Pepperstone research, in a report. However, Weston warned that the overall performance of the index market was poor, and the market participation was mediocre, suggesting that the rise was built on an unstable foundation. "The fact remains that the market is still very bullish on AI-related stocks and large tech stocks, and given the lack of clear immediate risks, the path of least resistance is for stock indices to rise." While consumer spending has shown signs of slowing and hints at potential economic weakness, investors continue to flock to the AI giant. The rise of Nvidia has also boosted its peers. Chip maker Broadcom has surged more than 60% from 2024 to date. Scott Chronert, Citigroup's US stock strategy director, wrote in a report on Tuesday: "We still believe that Wall Street (the S&P 500) is diverging from the corporate sector (the foundation of the US economy), is this strange? There is no doubt that generative AI is currently infiltrating the US stock market environment as a sustained driver of growth." Nevertheless, some commentators have noted that while this doldrums has not yet fully affected the US stock market, which repeatedly sets new highs, the rise lacks breadth beyond the largest tech companies, and this situation may continue to deteriorate. Thomas Fitzpatrick, managing director of R.J. O'Brien and Associates, said, "There's a feeling of AI theme that's very similar to the 2000-2001 US stock style, but as we know, markets stay irrational longer than you stay solvent. But for now, it's hard to stop the speeding train." Sam Stovall, chief investment strategist at CFRA Research, said that due to three major unfavorable factors that will suppress stock prices, the US stock market will see a correction. This Wall Street veteran pointed out that so far this year, the stock market has performed strongly, with the S&P 500 index up 15% from 2024. However, he predicted that the benchmark index would fall 5% due to unfavorable interest rates, inflation, and stock valuations. The inflation rate is declining but still above the Federal Reserve's target of 2%, leading Fed officials to expect only one interest rate cut by year-end. As for Thursday's economic data, the initial claims for unemployment benefits in the United States were almost unchanged last week, and the data for the previous week rose sharply. These data tend to fluctuate before and after holidays and school vacations. Data released by the US Department of Labor on Thursday showed that as of June 15, the number of initial claims for unemployment benefits decreased by 5,000 to 238,000. The number of continued claims for unemployment benefits as of June 8 rose to 1.82 million. In the past year, the number of people applying for unemployment benefits has remained low as the labor market has shown resilience in the face of high prices and high interest rates. The four-week moving average of initial jobless claims rose to 232,750, the highest level since September last year.

In the upcoming presidential election, tax policy is a key issue facing the market.

Last week, the bond market reflected this. Due to concerns about the deficit, the yield on US Treasuries soared as investors began to consider the potential impact of Donald Trump's re-election as president after a poor performance in the Biden debate.

"This is one of the most important policy issues in the past ten years," Greg Valliere, of AGF Investments, told me.

The reason is as follows: Several provisions in the 2017 Tax Cuts and Jobs Act, which lowered the corporate tax rate from 35% to 21% and reduced individual tax rates, are set to expire next year.

The US government's budget proposal earlier this year called for a 25% minimum tax rate on the richest Americans and raised the top marginal income tax rate for those earning over $400,000 to 39.6%.

For companies, Biden proposes to raise the corporate tax rate to 28%, while a Republican victory could lower the tax rate to 15%.

Remember, the enthusiasm for tax cuts drove the stock market up in 2017, and Wall Street believes that Trump's re-election as president will make these tax cuts more likely to be extended.

However, as we saw in the market movements this week, professionals warn that this may not necessarily be a home run for investors.

Keith Lerner of Truist told me that extending tax cuts may not necessarily be good news for the market, and he stressed the importance of not ignoring the bond retail investor when assessing the risk of debt increase.

"The bond market is always capable of taking a negative view of potential behavior by candidates to lower taxes, extend current policies, or increase spending," Lerner said.

For those planning investment strategies, UBS Chief Investment Officer Solita Marcelli points out that the enthusiasm generated by tax cuts and relaxed regulations could wane due to trade issues.

Marcelli wrote in a report to clients that therefore, "interest rates and the dollar may initially rise."

But remember, it is still too early to assume that a Republican landslide will guarantee tax cuts, and the market may be too eager to assume so.

Valliere believes that as more Republican lawmakers become concerned about the deteriorating fiscal situation, both parties are "shuddering at the idea of extending tax cuts."

The Congressional Budget Office (CBO) estimates that extending the Tax Cuts and Jobs Act will add $4.6 trillion to the deficit over the next decade, $1.1 trillion more than previously estimated. The current total US federal debt exceeds $34 trillion, and the government is expected to spend nearly $900 billion on interest payments by 2024.

Editor/Lambor