On the evening of the 10th Beijing time, the US stock market opened higher on Tuesday, but the Dow later fell. The market is at a critical juncture, with the important August CPI inflation index to be released on Wednesday and the September monetary policy meeting of the Federal Reserve next week. Investors will also pay attention to topics such as import tariffs, trade policies, and taxes in today's US election debate.

As of the time of writing, the Dow fell 0.18%, the Nasdaq rose 0.61%, and the S&P 500 index rose 0.39%.

The market sentiment is cautious, and investors are closely watching concerns about US recession and the possibility of an economic slowdown. With the cooling of the labor market, many market participants are concerned that the actions of the Federal Reserve may have fallen behind actual needs.

On Monday, with investors buying on dips, the three major US stock indexes rebounded sharply after their worst week of the year. The S&P 500 index closed up 1.16%, ending the continuous four-day decline and rising for the first time in September. Boosted by the rise of Nvidia, the Nasdaq rose 1.16%. The Dow rose 484 points, or 1.2%.

Historically, September has been a weak month for the stock market. Investors remain cautious about the impact of seasonality on stock performance and the uncertainty of the upcoming US presidential election on November 5th.

Goldman Sachs strategist says that the US stock market is unlikely to crash by 20% or more, because the risk of an economic recession remains low and the Federal Reserve is expected to cut interest rates.

Led by Christian Mueller Glissmann, the team stated that although the US stock market may experience a decline before the end of the year due to rising valuations, mixed economic growth prospects, and policy uncertainty, the probability of the stock market entering a bear market is low because the economy is also supported by a "healthy private sector" to some extent.

In addition, an analysis of historical data by the Goldman Sachs strategy team shows that since the 1990s, the occurrence of the S&P 500 index falling more than 20% has become less frequent due to extended business cycles, reduced macroeconomic volatility, and the "buffer" provided by central banks.

This week the market is focusing on CPI and PPI inflation data.

This week traders are focused on two key economic reports that could become catalysts for the stock market. The August Consumer Price Index (CPI) report will be released on Wednesday, followed by the Producer Price Index (PPI) on Thursday.

Analyst Shaw from Investec said, "Inflation data has been crucial for the past few months, but this time it may have a smaller impact. The market is already firmly convinced that price pressures are easing. More importantly, the expected trend of the US economy and whether economic activity can continue or slow down."

The August non-farm payroll report released last Friday showed that non-farm employment in the US increased by 0.142 million, lower than economists' expectations. This data led to a sell-off in US stocks.

On Tuesday's economic data front, optimism among US small businesses saw the largest decline in over two years last month. The outlook for company profits deteriorated, and the view on sales and economic prospects became more pessimistic.

The National Federation of Independent Business's Small Business Confidence Index fell 2.5 points in August, the largest drop since June 2022, to 91.2. This decline wiped out nearly half of the gains from the previous four months.

Of the 10 sub-indexes of the index, 8 declined, with the sales expectations index leading the decline, down 9 points. As high prices, interest rates, and labor costs continue to impact businesses, about 37% of companies reported deteriorating profits, the highest level since 2010.

Among companies reporting declining profits, 31% attributed it to weak sales, while 17% blamed it on materials prices. Another 13% mentioned labor costs. The report shows that nearly a quarter of business owners said inflation is their single biggest problem, far above the long-term average of 3% from 1986 to 2020.

The Federal Reserve will hold a monetary policy meeting next week.

The Federal Reserve will hold a monetary policy meeting from September 17th to 18th (Tuesday to Wednesday) next week. Currently, investors are betting that the Federal Reserve will take measures to cut interest rates, which will help alleviate concerns about a weak economy.

Just two weeks ago, the stock market was at historic highs as the market expected the Federal Reserve to provide new stimulus measures by lowering borrowing costs. However, with the significant slowdown in the labor market, shrinking manufacturing activity, and declining inflation, market sentiment has changed.

According to the FedWatch Tool from CME Group, the currency market believes there is a 73% chance that the Federal Reserve will cut interest rates by 25 basis points, and it is expected that the Federal Reserve will loosen monetary policy by a total of 100 basis points by the end of 2024.

Just two weeks ago, the stock market was at historic highs as the market expected the Federal Reserve to provide new stimulus measures by lowering borrowing costs. However, with the significant slowdown in the labor market, shrinking manufacturing activity, and declining inflation, market sentiment has changed.

According to the FedWatch Tool from CME Group, the currency market believes there is a 73% chance that the Federal Reserve will cut interest rates by 25 basis points, and it is expected that the Federal Reserve will loosen monetary policy by a total of 100 basis points by the end of 2024.

Political risks in the United States are back in focus.

Later on Tuesday, former President Trump will debate with Vice President Harris. Grace Peters, the Global Head of Investment Strategy for JPMorgan Private Bank, said, "We need to see the actual situation and see if it will affect the market. We will pay attention to debate topics such as import tariffs, trade policy, and taxes."

According to data from Goldman Sachs, hedge funds are closing their positions in preparation for market volatility ahead of the November 5th election.

Ohsung Kwon, Bank of America stocks and quantitative strategist, said, "We agree with the view that the market may remain volatile at least until the election. Macro data has been weak, especially in the manufacturing/commodity sector that accounts for 50% of the S&P 500 index's returns."

Ahead of the Harris and Trump debate, the Cboe Volatility Index (VIX), which measures market anxiety, is hovering around 20. Compared to the average index of 14.8 in 2024, this indicates an increased demand for protecting against stock volatility.

According to Bank of America data, the VIX typically rises by about 25% between July and November in election years, as investors pay more attention to the impact of candidates' policy proposals on the market.

Amy Wu Silverman, Head of Capital Markets Derivative Strategy at Royal Bank of Canada, said in a report, "The last presidential debate has truly ended, and now we have a completely new Democratic candidate. I do expect this to cause some market volatility."

Key sectors & stocks

Some new energy auto stocks are performing well, with XPeng Inc. up over 6%, Li Auto Inc. up over 5%, and Tesla up over 3%.

$Oracle (ORCL.US)$ The company's first-quarter performance exceeded expectations and reached a cooperation agreement with Amazon AWS. The stock soared nearly 13%, hitting a record high.

Deutsche Bank, which has a long-term bearish view on Tesla's stock price trend, recently released a rare research report on Tesla's stock price. The bank resumed its 'buy' rating on Tesla and listed it as the preferred stock in the auto industry, compared to the bank's long-term 'neutral' rating on Tesla. In addition, Deutsche Bank resumed its target price tracking for Tesla and set a target price of up to $295 for Tesla, while Tesla closed at $216.27 on Monday. $Tesla (TSLA.US)$ It rose more than 3% during the session.

The European Court of Justice, the highest judicial body in the European Union, ruled on the EU's lawsuit against Apple's massive tax evasion case, finding that the Irish government improperly provided tax advantages to Apple using national resources. Apple is required to repay 13 billion euros in taxes to the Irish government. Apple is expected to face income tax expenses of up to $10 billion in the fourth quarter. As of the time of publication, $Apple (AAPL.US)$ It fell nearly 2%.

$Alibaba (BABA.US)$ Formally included in the Hong Kong Stock Connect and bullish by Deutsche Bank, the stock price rose more than 2%.

$Li Auto (LI.US)$ With a weekly sales volume of 0.0107 million, it ranks third in the luxury brand sales list, and Li Auto's stock rose more than 6%.

Editor/Lambor