US stock outlook | Futures of the three major stock indexes soared, chip and optical communications stocks rose ahead of the market, and the escalation of the war in the Middle East hit the earnings season for tech giants

Pre-market market trends

1. On July 20 (Monday), the futures of the three major US stock indexes rose sharply before the US stock market. As of press release, Dow futures were up 0.48%, S&P 500 futures were up 0.59%, and NASDAQ futures were up 1.08%.

2. As of press release, the German DAX index rose 0.52%, the UK FTSE 100 index fell 0.11%, the French CAC40 index rose 0.56%, and the European Stoxx 50 index rose 0.46%.

3. As of press release, WTI crude oil fell 1.81% to $80.30 per barrel. Brent crude oil fell 1.33% to $86.93 per barrel.

Market news

The escalation of war in the Middle East meets earnings season for tech giants! The market waits for giants to provide a “quantifiable return on AI investment.” This week, investors will enter another five trading days with an extremely intensive financial schedule as the geopolitical situation in the Middle East escalates, the Philadelphia Semiconductor Index falls into a bear market, and the South Korean stock market continues to face severe deleveraging. Among them, the two major tech giants — Google (GOOGL.US) and Tesla (TSLA.US) — are receiving the most attention. These two companies will announce their results after the US stock market on Wednesday EST. Additionally, IBM (IBM.US), Intel (INTC.US), and Texas Instruments (TXN.US) will also announce their latest results this week. Against the backdrop of escalating geopolitical turmoil and a sharp correction in AI transactions, the performance and future prospects of these tech giants will be a key pricing threshold for testing “whether unprecedented AI computing power capital expenditure can be converted into actual revenue, cash flow, and return on investment”, and will determine whether the current wave of AI trading sell-off is nearing its end.

The decline in AI trading is compounded by heightened geographical risk! Wall Street is betting that US stocks may experience a “high volatility storm” in the summer. Momentum trading, driven by rising stock markets, is losing momentum, and optimistic profit expectations are being scrutinized. Both signs suggest that the market may experience higher volatility this summer. Index volatility is gradually rising as investors face increasing risk factors that challenge the overall bullish view. Overcrowded AI-related transactions are undergoing a sharp reversal, triggering large-scale capital rotation. Furthermore, although the current market remains calm in response to the rising geopolitical tension, if the situation escalates further, it will put pressure on the currently widely anticipated dovish monetary policy views. Meanwhile, market demand for risk hedging tools is growing rapidly. The Nations SkewDex Index has risen to its highest level since April — the index measures the cost difference between fictitious put options and accurate flat value options in the most liquid exchange-traded funds (ETFs) in the S&P 500 index to measure market bias — which may drive other indicators of volatility higher.

Societe Generale Bank: The AI boom is driving up individual stock volatility, but the overall market risk is manageable. Gitesh Kumar, a strategist at Societe Generale Bank, pointed out that although the AI investment cycle may continue to drive up individual stock volatility, the macroeconomic environment still supports the stock market. The bank believes that resilient economic growth, a strong labor market, and active fiscal policies will continue to limit the overall downside risk of the market. Investors are increasingly distinguishing between individual corporate winners and losers. This trend is driving up the volatility of individual stocks while pushing the correlation between stocks to historic lows. The report suggests investors may continue to focus on AI-related companies rather than broad-based indices. Although technical risks such as leveraged ETF activity and overcrowded positions may trigger intermittent surges in volatility, Societe Generale expects such fluctuations to be temporary unless economic fundamentals deteriorate significantly.

Is the war in the Middle East getting out of control? The tanker was attacked, the oil infrastructure was bombed, and the oil tanker was worth 90 dollars at one point. The latest war situation shows that the military confrontation between the US and Iran is indeed showing a marked warming trend. The US has attacked Iran for nine consecutive nights. Targets include the Revolutionary Guard's military capabilities, missile and drone systems, and infrastructure such as transportation and electricity. In response to US attacks, Iran has continued to attack various US military bases in the Middle East over the past few days. However, this is not equivalent to an irreversible full-scale regional war. The key watershed remains whether the facilities of major oil producers such as Saudi Arabia and the United Arab Emirates continue to be attacked, and whether the Houthis actually blocked the Mander Strait. The escalation of geopolitical hostilities in the Middle East has raised concerns in the market about supply shortages. According to a recent research report released by J.P. Morgan Chase, if China is excluded, global oil stocks are at an all-time low, leaving “almost no room for mistakes” in the global energy market.

Walsh reached an agreement with the bond market: the Fed's fight against inflation is far from over. According to the US Department of Labor report, US consumer prices fell month-on-month for the first time since 2020 in June, and the financial market breathed a sigh of relief — last week investors quickly settled their bets that “the Federal Reserve may start raising interest rates later this month.” But it's likely just a temporary resurgence. After the US-Iran cease-fire agreement broke down, oil prices rose again. Despite concerns about the bubble impacting some tech stocks, huge spending on artificial intelligence continues to inject stimulus into the economy. And Walsh, who took over as chairman of the Federal Reserve two months ago, has made it clear that the central bank's priority is to keep inflation down — inflation has remained above the 2% annual target for the past five years. Therefore, although traders currently believe that a rate hike in July is unlikely, they are still betting that the probability of a 25 basis point rate hike in September or October is high, and they regard the rate hike before December as almost a certainty.

Individual stock news

Chip stocks and optical communication stocks were higher before the market. Before the US stock market on Monday, as of press release, Micron Technology (MU.US) and SanDisk (SNDK.US) rose more than 4%; Western Digital (WDC.US) and Seagate (STX.US) rose nearly 4%; AMD (AMD.US) rose more than 5%; Intel (INTC.US) and Qualcomm (QCOM.US) rose more than 2%, and Broadcom (AVGO.US) and NVDA.US (NVDA.US) rose more than 1%. In terms of optical communications stocks, Credo Technology (CRDO.US) rose nearly 4%, Coherent (COHR.US) and Lumentum (LITE.US) rose more than 3%, AXT Inc (AXTI.US) and Astera Labs (ALAB.US) rose nearly 3%, and Corning (GLW.US), Maywell Technology (MRVL.US), and Nokia (NOK.US) rose more than 2%.

The wave of Apple (AAPL.US) price increases in Japan spread to the iPhone, with a maximum price increase of 20,000 yen for all new models. Apple raised the prices of several iPhone models in the Japanese market, and the retail price of some models in its smartphone series increased by as much as 11%. According to the prices announced by Apple's Japanese online store, this price adjustment applies to the iPhone 17 series, iPhone Air, and iPhone 16. Depending on the model, the price increased from 8,000 yen to 20,000 yen. Apple has yet to publicly explain this latest price change, but exchange rate pressure may be the driving force behind the scenes — the current price increase comes at a time when the exchange rate of yen against the US dollar continues to weaken, which has led to a decrease in the value of overseas revenue when converted back to the US dollar. At the same time, Apple has also been dealing with higher component costs. The company raised the prices of several other products last month, including the Mac and iPad, but the price of the iPhone remained the same at the time.

The AI supercycle detonates a production capacity war: TSM.US (TSM.US) is adding 100 billion US dollars in Arizona, and a huge investment of 265 billion dollars is being spent on the US AI chip map. Huang Renzhao, chief financial officer of TSM.US (TSM.US), said in an interview that as the “supertrend of customer demand over the years” continues to emerge, the company is making every effort to accelerate the rise in production capacity at the Arizona plant. Facing the surge in structural demand in the field of artificial intelligence that has continued for many years, TSMC is drastically expanding its investment footprint in the US, promising an additional $100 billion to aggressively expand its chip manufacturing layout in the US. This additional commitment raised TSMC's total investment in Arizona to $265 billion, highlighting the huge AI-driven production capacity construction, and also prompted the company to raise its annual capital expenditure forecast to the 60 billion to 64 billion US dollars range. Huang Renzhao said that the new investment resources are due to strong customer demand in the US market and strong support from the government.

Boeing (BA.US) production capacity expansion ushered in a critical turning point! The FAA reinstates final licensing rights for the new 737 Max and 787 aircraft. Following the near-catastrophic accident of a 737 Max aircraft in 2024, regulators discovered that Boeing had a range of quality issues. Subsequently, the US Federal Aviation Administration (FAA) restricted Boeing's aircraft production and removed the company's authority to execute the final licensing agreement on newly produced aircraft. The FAA said that the decision to restore Boeing's relevant authority will officially take effect on July 20, reflecting the company's progress in improving quality management and regaining the trust of regulators. This is critical for Boeing to scale up production, improve its financial position, and regain an edge in competition with rival Airbus. Currently, the US aircraft manufacturer is working to stabilize the production of its “Cash Cow” 737 series aircraft. The goal is to maintain monthly production at 47 aircraft, and plans to gradually increase it to 63 aircraft over the next few years. Furthermore, the FAA said that regulators will continue to monitor the aircraft manufacturer's quality level.

Performance Forecast

Tuesday pre-market: Novartis Pharmaceuticals (NVS.US), Carson Wealth Management (SCHW.US), General Motors (GM.US)