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Market Outlook | Fed Turns Hawkish Amid Geopolitical Turmoil—Can Earnings Justify Valuations?

This week's market outlook is out—join us for the live stream at 4:30 PM for deeper insights and real-time Q&A online:

Market Outlook Weekly Call

💡 Key Takeaways

– The Fed held rates steady at its June FOMC meeting but adopted a notably more hawkish tone, triggering massive sell-offs in long-end U.S. Treasuries, pushing the 10-year yieldbreaks above 4.7%to a new high for the year; geopolitical tensions in the Middle East have driven oil prices higher, but if the U.S. and Iran reach a ceasefire and the Strait of Hormuz resumes normal shipping,oil prices could quickly correct downward to the $60–70 per barrel range.。

– China’s Politburo meeting signaled a dual-easing stance of 'moderately accommodative monetary policy plus more forceful proactive fiscal measures,'with ample liquidity and accelerated physical project execution likely to become the main policy themes in the second half of the year.。

– In the U.S. equity market, the AI sector is undergoing selective repricing after deleveraging and valuation compression,with rebounds driven by earnings validation and short-covering, though breadth at the index level remains weak.In the near term, markets are more likely to trade in a strong, range-bound manner around earnings delivery and macro data; Hong Kong equities remain relatively strong in the short term, with August marking the start of the interim earnings verification period.Earnings realization and liquidity risk will determine whether the market recovery window can extend.。

– Next week, key focus should be on the impact of SpaceX's large-scale share lock-up expiration on August 6 and the non-farm payroll data on August 7 on September FOMC rate expectations; in terms of options strategies,Take advantage of the 'data vacuum period' between the release of non-farm payrolls and CPI data and before NVDA’s earnings report by using bull call spreads or diagonal spreads to capture the rebound momentum in tech stocks.。

I. Macro

1.1 Global Macro: Hawkish pivot by the FOMC combined with geopolitical tensions triggered massive sell-offs in long-duration bonds.

The FOMC meeting on June 16–17, 2026, reached a unanimous decision,to keep the federal funds rate unchanged at 3.5%–3.75%(the fourth consecutive hold). The dot plot showed that 9 out of 18 officials favored a rate hike within the year, signaling a policy shift away from"discussing rate cuts"Shift in direction“whether to hike rates”compared to the April meeting, which retained a dovish bias.The tone has clearly turned hawkish. Under newly appointed Chair Waller, the policy statement was drastically streamlined from over 300 words to approximately 130 words (a 62% reduction), forward guidance was officially abandoned, and five working groups were established to comprehensively reshape the Federal Reserve’s framework, returning to"constructive ambiguity"in the Greenspan style.

Core PCE prices rose 0.13% month-over-month in June, below the market expectation of 0.2%. Overall PCE came in at -0.11% (Morgan Stanley had forecast -0.06%, and the market consensus was -0.1%). May’s data was revised upward, but only by 1 basis point. Assuming oil prices retreat from current levels,core PCE inflation on a year-over-year basis in Q4 2026 will stand at 3.1%, airfare inflation is expected to ease, core goods inflation will continue normalizing (as tariff pass-through effects wane), and shelter inflation will further decelerate; core goods inflation remains positive, primarily driven by strong software price increases, reflecting sustained demand related to artificial intelligence.Overall,June’s data further indicates that the tariff-driven inflationary shock is nearing its end. Real GDP grew 1.5% in Q2, but underlying components were notably stronger: private domestic demand expanded by 3.9%, consumption rose 3.2%, rebounding robustly from Q1 weakness, and equipment investment surged again by 15%. AI is estimated to have contributed 0.8 percentage points to growth; weaker GDP components—such as strategic petroleum reserve replenishment, private inventory rebuilding, and modest stabilization in trade—are all expected to reverse.

The U.S. Treasury market is currently experiencing a significant rise in long-end yields,The 10-year yield has breached 4.7%, hitting a new high for the year，The 30-year yield remains firmly above 5.1%, while the short-end 2-year yield stays within the 4.2%–4.3% range. The key driver behind the recent acceleration in longer-end yields isthe widening term premium and deteriorating supply-demand dynamics: on one hand, tech giants are issuing large volumes of debt to fund AI-related capital expenditures, directly crowding out demand for long-end U.S. Treasuries; on the other hand, escalating geopolitical tensions in the Middle East and weakened forward guidance from the Federal Reserve have amplified market expectations for inflation and interest rate volatility.This confluence of multiple forces has triggered massive sell-offs in long-end U.S. Treasuries, and with the U.S. potentially raising the debt ceiling again, long-end Treasury yields, influenced by this development,are likely to remain elevated over the longer term。

The immediate catalyst for the recent surge in oil prices is the substantive escalation of Middle East geopolitical conflicts: disruptions to exports via the Strait of Hormuz affect approximately 9 million barrels per day (bpd) of supply; Houthi blockades of the Bab el-Mandeb Strait impair Saudi Arabia’s export capacity by 4–4.5 million bpd; and attacks on the CPC pipeline have reduced Kazakhstan’s output by 1–1.5 million bpd. Altogether, this round of conflict has caused an additional supply loss of about 5 million bpd. Concurrently, global crude inventories have declined by more than 600 million barrels since late February, with U.S. crude stocks falling to 723 million barrels.If the U.S. and Iran reach a comprehensive ceasefire agreement and navigation through the Strait of Hormuz resumes, the backlog of cargoes stranded in the strait would be released en masse, combined with Middle Eastern oil exporters offering discounts, leading to a rapid downward repricing of oil—potentially driving prices swiftly below $80 per barrel and even testing the $60–70 per barrel range.。

Fed Rate Cut Probability Chart (Source: CME FedWatch, July 31, 2026)

U.S. 10-Year Treasury Yield Chart (Source: Google Finance, August 1, 2026)

1.2 Domestic Macro: The Politburo Meeting Signals a 'Dual Easing' Stance—How Should Investors Navigate the Second-Half Theme?

The Politburo meeting directly addressed current pain points, explicitly noting challenges such as a phase of economic slowdown and a complex external environment,The core macroeconomic issue remains the imbalance of 'strong supply versus weak demand.'。

Monetary Policy (Moderately Accommodative): The meeting explicitly called for implementinga 'moderately accommodative monetary policy,'maintaining reasonably ample liquidity, shifting the policy stance from the previous emphasis on 'enhancing forward-looking flexibility' to 'comprehensively deploying and timely adjusting monetary policy tools,'The market expects further interest rate and reserve requirement ratio cuts to guide down financing costs.。

Fiscal policy (proactive and intensified): Emphasizes strengthening both counter-cyclical and cross-cyclical policy adjustments, with the core objective being"effective implementation and tangible results", focusing on ensuring allocated funds translate into real physical output; it also explicitly calls for "forward-looking preparation of additional policy measures," leaving ample policy tools in reserve to support the economy going forward.

II. Market Outlook

2.1 US Equity Market: AI leaders’ earnings validation drives recovery—can the rebound continue?

Last Week Recap: The S&P 500 rose 1.05% for the week, and the Nasdaq gained 1.59%, reflecting a technical rebound amid high volatility. Midweek saw valuation compression, followed by a recovery driven by earnings validation from AI leaders like Microsoft and Amazon. The VIX spiked to 20.66 on July 29 but fell back to 17.09 on July 30, indicating rapid position rotation by investors amid heightened volatility. When markets focus on oil prices and inflation, energy, defensive, and value stocks outperform; when markets focus on earnings and AI realization, large-cap tech, semiconductors, and memory stocks experience pulse-like rebounds.

This Week’s Outlook: US equities rebounded in the latter part of last week, which can be viewed as a recovery following deleveraging in the high-valuation AI supply chain. Notably, the S&P IT sector rose +5.2% on July 30, and market sentiment was further supported by macro data (core US PCE in line with expectations).Whether the rebound drivers can persist: After deleveraging and valuation compression, the AI sector is undergoing selective repricing. The rebound has been driven by earnings validation and short-covering, but breadth at the index level remains weak. In portfolio positioning, we reiterate our focus on AI companies’ returns, profit margins, cash flow, and capex efficiency.Large-cap tech leaders that can demonstrate conversion of investments into revenue and profits are more likely to sustain their rebounds.Although a short-term rebound has already occurred, as long as geopolitical tensions remain volatile and oil prices stay elevated, markets are unlikely to return to the previous low-volatility, consistently expanding valuation environment.In the near term, US equities are more likely to trade in a strong, range-bound manner around earnings delivery and macro data.。

Rationale: The FOMC held rates steady but adopted a hawkish tilt, with three voting members advocating for a 25-bp rate hike—the most concentrated dissent since 2016—making explicit the Fed’s internal concerns about inflation and potential further tightening. Compounded by escalating Middle East tensions on July 29, Brent crude rose, pushing up long-term inflation risk premiums and contributing to some valuation compression. On July 30, Q2 preliminary annualized real GDP growth came in at 1.5%, below both the prior reading of 2.1% and market expectations. June core PCE YoY rose 3.3%, down from 3.4% previously and in line with expectations, indicating marginally weakening macro data that alleviated rate hike concerns. Meanwhile, preliminary real personal consumption expenditures exceeded expectations, suggestingUS domestic demand is not significantly decelerating; rather, aggregate growth is moderating while internal demand structure remains relatively resilient.The core drivers of the rebound on July 30 and 31 were large-cap tech earnings validation: Microsoft’s cloud revenue grew 43% YoY, marking its largest increase in four years; Amazon’s Q2 AWS operating profit reached $16.6 billion, up 64% YoY, with an operating margin of 39.4%. Amazon also raised its capital expenditure guidance to $220 billion, underpinned by a $496 billion order backlog and AI and chip businesses each surpassing $25 billion in annual recurring revenue (ARR).

Forward 12-month P/E ratio trend of the S&P 500 (20.9x as of July 30, 2026; Source: Bloomberg, compiled by Futu Wealth Management)

🔍Key stock views: $Amazon (AMZN.US)$

Amazon reported Q2 net sales of $200.6 billion, up 20% year-over-year, approximately 2% above consensus estimates. Operating income reached $27.46 billion, a 43% year-over-year increase, about 16% higher than market consensus. Against the backdrop of an annualized revenue base approaching $800 billion,the company not only maintained high growth but also delivered profit expansion significantly faster than revenue growth.AWS reported Q2 2026 revenue of $42.23 billion, up 37.0% year-over-year, approximately 4.1% above consensus, marking its fastest growth rate in 18 quarters, indicating thatdemand constraints are not currently an issue; rather, the bottleneck lies in supply shortages.High investment remains a prerequisite for the next phase of profit expansion. Its forward 12-month P/E ratio stands at 22.5x, trading at the -1 standard deviation level relative to its 1-year historical range,leaving room for further valuation recovery.。

Rationale: In Q2 2026, AWS simultaneously validated strong underlying demand and gradual supply ramp-up. Profitability continued to improve, unaffected by AI-related investments. AWS backlog reached $496 billion, nearly 2.5x higher year-over-year and up 36% quarter-over-quarter.As customers increase their AI investments, their core cloud service consumption also rises in tandem. The company observes a strong correlation between AI spending and core growth.Amazon’s recent fundamental improvements are also reflected across multiple business segments—including retail, third-party seller services and advertising, and North America segment margins—collectively validating enhanced operational quality. Global paid units grew 17% year-over-year in Q2, Prime membership maintained double-digit year-over-year growth, and the number of items eligible for same-day or next-day delivery to Prime members in the first half of the year increased by over 40% year-over-year. Although high capital expenditures (Capex) turned free cash flow (FCF) negative, future revenue and profit realization are already supported by backlog, ARR, payback periods, and management guidance. Management’s ROIC framework indicates that investments in servers and networking equipment reach breakeven in under three years, while their useful life spans at least 5–6 years, and data centers have a lifespan exceeding 30 years—supporting 5–6 generations of server upgrades.

Amazon (AMZN) Valuation Trend Chart (Source: Bloomberg, compiled by Futu Wealth Research)

2.2 Hong Kong Equity Market: Southbound flows cooling off, interim earnings verification period approaching—how will the recovery rally sustain?

Last Week Recap: The Hang Seng Index rose 3.69% for the week, with average daily turnover of HK$281.2 billion, up approximately HK$10.8 billion from the prior week. Southbound net outflows via Stock Connect totaled approximately HK$18.7 billion, a sequential decrease of about HK$21.7 billion. Liquidity remains ample in the Hong Kong market, as trading volumes stayed elevated despite Southbound outflows. Southbound selling was concentrated mainly in select internet, semiconductor, and AI hardware supply chain leaders, while top inflows went to Zhipu AI, China Construction Bank, and J&T Express-W, reflecting increased allocation toward assets with positive interim earnings expectations.If foreign capital continues to return and Southbound activity represents only temporary portfolio rotation, the Hong Kong market could maintain a high-level consolidation and recovery pattern.。

This Week’s Outlook: The Hong Kong market remains relatively strong in the near term, driven over the past month by valuation recovery and Southbound buying. As August enters the interim earnings verification window, corporate results and global liquidity risks will determine whether this rally can extend further. Within tech, investor focus may shift from broad AI hardware plays toward internet platforms and applications more dependent on earnings delivery, with domestic substitution remaining central. Defensive sectors such as financials, energy, and telecom are expected to act as stabilizers amid geopolitical and interest rate volatility. If global rate and oil price volatility eases and interim results confirm earnings resilience among internet/tech/consumer leaders, the market will retain the foundation for continued high-level consolidation. Structurally, the market is likely to follow a dual-track pattern: rotation within tech sectors coupled with defensive high-dividend stocks providing support.However, if Southbound outflows persist, overseas risk appetite remains volatile, and AI hardware supply chain earnings fail to justify current valuations, the market is more likely to enter a consolidation phase around the 26,000 level.。

Basis of Viewpoint: At the index level, Hong Kong equities outperformed U.S. stocks this week, indicating that the recovery trend remains intact: From an ADT (average daily turnover) perspective, average daily turnover has remained above HK$300 billion since July. Turnover on July 29 and 30 stood at HK$312.2 billion and HK$304.8 billion, respectively. The index has rebounded from the low of around 23,000 points seen in May–June 2026 to approximately 26,000 points in July, with turnover remaining elevated and volatile—suggestingprice recovery accompanied by genuine trading activity. In the first half of July, the main driver behind the catch-up rally in Hong Kong equities was indeed accelerated positioning by southbound capital. However, southbound flows have clearly cooled off since late July and even turned into net outflows—recording net southbound sales of HK$5.5 billion and HK$8.571 billion on July 29 and 30, respectively. July 30 marked the sixth consecutive trading day of net outflows. On July 29, the Hang Seng Index rose 1.96% and the Hang Seng Tech Index gained 2.84%,indicating that the rally on that day was not solely driven by mainland capital, but more likely fueled by foreign short-covering and passive fund inflows. According to EPFR data, passive foreign capital has shifted from net outflows to modest net inflows since April.

Forward 12-month P/E Ratio Trend of the Hang Seng Index (Source: Bloomberg, compiled by Futu Wealth Management, as of July 31, 2026)

🔍Key Stock Views: $XIAOMI-W (01810.HK)$

Xiaomi Group’s core businesses generate sufficient cash flow to support investment in new ventures, which have not yet fully crossed the breakeven point. Upside catalysts primarily stem from new vehicle orders/deliveries exceeding expectations: deliveries of existing models continue to maintain a baseline of over 30,000 units per month, with cumulative deliveries of the SU7 and YU7 surpassing 700,000 units. Additionally, the Pengcheng N70/N90 models mark Xiaomi’s official entry into the family-oriented extended-range SUV segment, expanding both its product portfolio and technology platform. The company demonstrates resilient profitability in its smartphone business, external validation of its AI platform (MiMo-V2.5 reached 10.5 trillion token calls in a single week), and strong capital allocation confidence—as evidenced by substantial share buybacks using real cash, which also provides valuation support. Its forward 12-month P/E ratio stands at 22.5x, sitting at the minus-one standard deviation level relative to its one-year historical range,leaving room for further valuation recovery。

Basis of Viewpoint: Xiaomi has launched its second product lineup, officially entering the extended-range SUV market. Previously, Xiaomi Auto’s core user base leaned toward tech-savvy consumers, performance car enthusiasts, and sedan/EV users, whereas Pengcheng targets the larger, more mature, and mainstream family-oriented extended-range SUV segment,directly expanding into multi-child families, long-distance travelers, and users in areas with limited refueling or charging infrastructure. The Pengcheng N70/N90 are priced at or below the lower end of market expectations, offering clear competitiveness: for example, the N90 Max rivals premium extended-range SUVs like the Li L9 and Aito M9 in terms of size, range, and features, yet its pre-sale price is only RMB 299,900—significantly below the typical RMB 400,000+ price range of these competitors; the N70 Max directly competes with large five-seater SUVs like the Li L6 but offers higher specifications in battery capacity, all-electric range, and certain chassis/ADAS hardware. The company has been actively repurchasing shares at lower stock prices, strengthening the current share price floor and enhancing per-share value certainty.As of July 31, cumulative share buybacks for the year have reached HK$11.366 billion, substantially exceeding the HK$8.4 billion level recorded from early January through May 22.。

Xiaomi Group Valuation Trend Chart (Source: Bloomberg, compiled by Futu Private Wealth Research)

III. Key Focus This Week

On August 6, SpaceX will unlock up to approximately 900 million shares, valued at around USD 116 billion. The market considers the lock-up expiration itself to have limited impact, but its timing—just two days after the company’s first earnings release—has led many to view it as a“major stress test”，If disappointing earnings coincide with this large-scale lock-up expiration, it could trigger a negative feedback loop.。

On August 7, the first full employment report following the July FOMC meeting—where rates were held steady—will be released,Non-farm payroll data will directly determine the market's pricing direction for September rate expectations.Market expectations are for July non-farm payroll additions of around 91,000, a clear increase from June, with the unemployment rate expected to tick up slightly to 4.3%.

IV. Views from Major Institutions

US stocks: Following deleveraging and valuation compression, the AI sector is undergoing selective repricing. The rebound is driven by earnings validation and short-covering, but breadth at the index level remains weak. In portfolio allocation, we reiterate our focus on AI companies demonstrating strong returns, profit margins, cash flow, and capex efficiency—particularly large-cap tech leaders that can prove their investments are translating into revenue and profits—as their rebounds are more sustainable. We are currently ina period of intensive Q2 earnings releaseswith 50% of U.S. listed companies having already reported results. Earnings per share (EPS) have grown 20% year-over-year, beating expectations by 8 percentage points. All U.S. sectors have shown EPS improvement compared to Q2 2025, and the proportion of companies raising earnings guidance has reached its highest level since 2021.The risk of an earlier rate hike is rising, with the first hike now expected as early as December 2026.。

Hong Kong stocks: Hong Kong equities remain relatively strong in the near term, supported over the past month by valuation repair and increased southbound capital inflows. August marks the interim earnings verification period; corporate results and global liquidity risks will determine whether this window of opportunity can continue. Within tech, the focus may shift from broad AI hardware to internet platforms and applications more dependent on earnings delivery, with domestic substitution remaining central. We maintain our view that defensive assets such as financials, energy, and telecom will serve as stabilizers during periods of geopolitical and interest rate volatility.Near-term Hong Kong market performance is stronger than that of A-shares:CXMT's IPO is causing liquidity disruptions, compounded by global AI volatility weighing on China's semiconductor sector; however, in the medium to long term, A-share hard-tech and innovation-focused segments are seeing accelerating earnings growth and offer potential for excess returns.Increase Hong Kong equity exposure from July to September to capture the repair window; reassess global market dynamics in late summer and adjust positions accordingly.。

5. Options Strategy Example—The Rocky Road to Tech Sector Recovery

U.S. equities have rebounded, but the July nonfarm payrolls report—scheduled for release on Friday, August 7—will include net job additions, unemployment rate, labor force participation rate, and average hourly earnings. This data will directly impact market pricing of rate expectations ahead of the FOMC meeting on September 16.

⚠️ If employment data comes in stronger than expected, it will reinforce the Fed’s hawkish stance, pressuring high-valuation tech stocks. The July CPI will be released on August 12—though outside next week’s immediate timeframe, the market will likely price in expectations between August 7 and 11.volatility may therefore remain elevated.。

July’s pullback has already alleviated some high-valuation risks. Microsoft and Amazon’s quarterly results indicate that the long-term demand narrative remains intact. NVDA has pulled back 17% from its $236 peak. Ahead of its earnings release on August 26, markets typically begin repricing expectations 2–3 weeks in advance. Choosing options expiring on August 15 (after both NFP and CPI releases but still 11 days before NVDA’s earnings)allows capturing rebound momentum during the 'data vacuum period' while avoiding excessive time decay from holding positions too long.. Valuation: Current forward 12-month P/E is approximately 22.4x, sitting at about -1 standard deviation relative to its 1-year history.

⚠️ Risk: If the August 7 nonfarm payroll data significantly beats expectations, it could push up 2-year U.S. Treasury yields, thereby compressing the valuation anchor for long-duration equities.

Source: Bloomberg, compiled by Futu Private Wealth Investment Research

💡Strategy A: Bull Call Spread (Bullish Vertical Call Spread)(Bullish on a rebound, while controlling premium cost and downside risk)

Expiring August 15: Buy the 205 Call (~$6) + Sell the 220 Call (~$2), net premium outlay of $6. Maximum profit = (220 - 205) - 6 = $9 per spread (150% return). Maximum loss = $6 per spread (net premium paid). Breakeven at $211. Delta ≈ +0.35 (moderately bullish). Advantages: With a $6 outlay, potential for $9 profit—risk-reward ratio of 1:1.5. In a high implied volatility (IV) environment, selling the 220 Call significantly reduces net premium outlay, and maximum loss is capped—ideal for managing uncertainty ahead of the Non-Farm Payrolls (NFP) data release.

Disadvantages: Profit is capped at $220. If NVDA rallies strongly above $230 following improved risk appetite post-NFP, the strategy won’t capture gains beyond $220. Time decay negatively impacts the long 205 Call; the stock must meaningfully break above $211 before August 15 for the trade to profit.

💡Strategy B: Diagonal Call Spread(Bullish on a rebound + time-value arbitrage + retains upside exposure through earnings)

With the August 7 NFP data imminent, the market prices in significant near-term uncertainty. Buy the September 19 200 Call (~$18) + Sell the August 15 210 Call (~$6), net premium outlay of $12 (maximum loss). The August 15 210 Call has higher implied volatility than the September 19 210 Call, allowing excess time value to be collected by selling the near-month option. The short August 15 position avoids earnings volatility (August 26), while the long September 19 position fully covers the earnings date—if earnings exceed expectations,the long position’s unlimited upside exposure remains uncapped by any sold call, with Delta ≈ +0.45 (moderately bullish, though dynamically changing over time).

⚠️ The drawback is high management complexity and the risk of assignment on the short position, requiring active buyback of the short leg or closing the entire spread. Not suitable for investors who prefer a 'set-and-forget' approach after opening a position. Operational discipline:

1) Before the August 7 non-farm payroll data release: If NVDA rallies quickly to $208–$210, consider buying back the August 210 Call early (to capture time value + avoid assignment risk), while holding the September 200 Call alone.

2) Before the short leg expires on August 15: If the stock price remains stably below $210, allow the short leg to expire worthless, effectively lowering the cost basis of the long leg at no cost; if the stock price breaches $210, do NOT rely on 'passive exercise' of the long leg to cover—instead, directly buy back the short leg in the market to preserve the time value of the long leg.

3) Before the earnings announcement on August 26: If unrealized gains between August 15 and 25 reach 2–3x the net initial outlay (i.e., +$24 to +$36), consider closing the position two days before earnings to lock in profits. If the trend remains strong, retain 50% of the position to speculate on the earnings move.

[Investment Advisory Information]

Yu Shilin, Licensed Representative, CE Number: ATQ882

Yang Yi, Licensed Representative, CE No.: BUR210

Sun Bihan, Licensed Representative, CE No.: BWS708

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