The economic slowdown dominates the entire United States, with expectations of interest rate cuts once again leading the US stock market

According to the Zhitong Finance and Economics APP, global investors' pessimism about the short-term outlook of the US stock market has somewhat diminished this week. The main logic behind this is that the recent release of US economic data has significantly raised expectations of a rate cut in September and two rate cuts within the year, rather than just one rate cut as implied by the latest Fed dot plot.

In the latest survey of retail investor sentiment released by the American Association of Individual Investors (AAII) (as of the week ending July 3), only 26.1% of respondents stated that they believe the market will trend downward in the next six months. This proportion was 28.3% last week, significantly lower than the historical average of 31%.

With the surge in rate cut expectations, the "rate cut trade" continues to boost investor sentiment in the US stock market. As of the week ending July 3, neutral sentiment among retail investors in the US stock market has also increased, with approximately 32.2% of investors believing that the market direction has not changed. This number was 27.2% a week ago. The bullish sentiment of retail investors towards the US stock market in the next 6 months has cooled off compared to the peak of nearly 45% reached in June, with close to 42% of surveyed investors taking a bullish stance on the US stock market in the next 6 months.

The decline in the May US core PCE price index has relieved investors. This index is considered the preferred measure of inflation by Federal Reserve officials.

During the June Federal Open Market Committee meeting, Fed officials stated that they are looking for more favorable inflation data to further gain confidence that the process of combating inflation is progressing in the right direction. Officials acknowledged that they have made "modest further progress" towards achieving the 2% inflation target.

Fed Chair Powell's recent statements on inflation have also calmed market sentiment. Powell said, "We have made considerable progress in bringing inflation back to our policy target. Recent inflation data, as well as previous data, indicate that we are returning to a path of declining inflation. Before we start easing policy, we want to be more confident that inflation is steadily declining and approaching 2%."

Recent economic data also support the Fed's argument for an early start to rate cuts. The US economy slowed significantly in the first half of this year, which is related to the Fed's long-term maintenance of a high interest rate policy (i.e., higher for longer) to comprehensively raise borrowing costs and the persistent inflationary impact in the US.

Revised economic data shows that in the first quarter, the core engine of the US economy—personal consumption expenditure data—fell by 0.5 percentage points compared to the initial estimate, resulting in a final annualized quarterly growth rate of only 1.5%, a significant slowdown from the 3.3% growth rate in the previous quarter.

If personal consumption expenditure continues to slow down, the US economy seems to be getting closer to falling into an economic recession. Consumption, as the "giant wheel," can be regarded as the "core driving force" of the US economy, with all consumption items accounting for as much as 70%-80% of US GDP data. However, the latest revised economic data shows that in the first quarter, there were clear cracks in the US labor market, and consumption expenditure slowed significantly.

Other data collectively indicate that every corner of the US economy is confirming a slowdown in economic growth, and the talk of recession is making a comeback. For example, some commercial equipment orders and shipments are declining, the trade deficit is at its highest in two years, there are signs of weakness in the job market, and housing sales are declining across the board.

On Wednesday, the US released "small non-farm" ADP employment data for June, showing that private wage growth was lower than expected, and weekly initial jobless claims were far higher than expected. As of the week ending June 22nd, the number of ongoing claims for unemployment benefits increased to 1.86 million, the highest level since November 2021. The US June ISM Services PMI fell well below expectations, with the contraction in service activities at the fastest pace in four years.

Quincy Krosby, Global Strategist at LPL Financial, pointed out that given data indicating a cooling US economy, Friday's non-farm payroll data could be crucial for the Federal Reserve, as the Fed is looking for reasons to signal loose monetary policy. Non-farm data will help clarify the basic conditions of the labor market, and weak non-farm employment data may further drive overall income down, leading to even weaker US consumer spending.

However, the weak earnings of some heavyweight high-market-cap stocks have led to a decrease in the number of investors optimistic about the short-term prospects of the US stock market.

As many as 41.7% of retail investors surveyed are optimistic about the market direction in the next six months, down from 44.5% last week. Bullish and neutral data are both higher than historical averages of 37.5% and 31.5%.

Last week, Wall Street digested the shocking warning from sports consumer leader Nike (NKE.US) that sales would drop by 10% this quarter, causing the stock price of the sportswear giant to drop by over 10% in after-hours trading following the earnings release.

Similarly, chain drugstore operator Walgreens Boots Alliance (WBA.US) saw its stock price drop by over 5% last Thursday after the company lowered its full-year outlook due to the challenging overall retail situation in the US.

"The major markets have begun to cut interest rates, and the Fed is expected to start easing its aggressive monetary tightening policy that has lasted for up to 2 years no later than December. The upcoming elections may bring pressure to the market, but the global economy is still relatively healthy," a recent analysis report from Seeking Alpha pointed out.

The US benchmark index, the S&P 500 Index, rose nearly 1% in the past week, while the Dow Jones Industrial Average (DJI) edged up slightly. The Nasdaq Composite Index and the Nasdaq 100 Index (NDX) focusing on technology stocks saw the latest weekly gains surpassing the S&P and Dow, both rising close to 2%, reflecting market optimism towards NVIDIA, Tech giants like Microsoft and Google continue to dominate with their optimistic sentiment