The "bleak season for US stocks in August-October" is approaching, beware of the wave of "profit-taking"! The financial reports of tech giants will dominate the fate of US stocks

According to the Zhītōng Finance APP, analysts from RBC Capital Markets have published some views on the outlook for the US stock market in their latest "Market Pulse" report. This market research report shows that July is usually the strongest month for the US benchmark index - the S&P 500 Index, with an average increase of up to 4.26% over the past 5 years. The problem usually arises between August and October, with data showing that these three months historically have weaker performance compared to other months, with September showing the largest five-year average decline of -4.23% for the S&P 500 Index.

The S&P 500 Index just ended the first half of July with the best two weeks in a year, and is approaching the most challenging period in August, September, and October, during which US stocks tend to be relatively sluggish.

The report also indicates that the top ten market cap stocks in the S&P 500 Index - Microsoft (MSFT.US), Apple (AAPL.US), NVIDIA (NVDA.US), Amazon (AMZN.US), Meta (META.US), Google A (GOOGL.US), Google C (GOOG.US), Berkshire Hathaway (BRK.A.US), Broadcom (AVGO.US), and Eli Lilly (LLY.US) - have seen stagnant stock price performance recently after soaring to new interim highs in the past month.

The concentration of mega-cap stocks in the US stock market is also much higher than the historical peak after the pandemic. Since the end of June, only Tesla (TSLA.US) and Apple among the "Magnificent Seven" tech giants have outperformed the S&P 500 Index, while others have significantly underperformed.

So far, real estate (corresponding to the US stock industry ETF: XLRE), financials (XLF), and materials (XLB) have been the leading sectors in the third quarter of the S&P 500 Index. Communication (XLC) and technology (XLK) have been the worst-performing sectors in the S&P 500 Index.

Lori Calvasina, Global Head of Equity Strategy Research at RBC Capital Markets, wrote: "Overall, growth sectors have slightly stalled since July, while value sectors have continued to be active."

Looking at the major sectors of US small-cap stocks, the telecom, utilities, and financial sectors have been the best-performing small-cap sectors so far this quarter.

In the US small-cap benchmark index - the Russell 2000 Index, the overall earnings per share and sales for the second quarter exceeded market expectations and surpassed the first quarter; so far, 74% of component companies in the Russell 2000 Index have exceeded market expectations for earnings per share, and 61% have exceeded market expectations for sales, which may continue to attract market funds to small-cap stocks and continue to outperform the S&P 500 Index For the seven major technology giants and the high-weighted S&P 500 index dominated by these giants, the most significant catalyst undoubtedly lies in the upcoming release of the performance of the seven giants at the end of July to August. If the actual performance is exceptionally strong, it may trigger a global capital inflow back into the seven major technology giants that dominate the high weight of the S&P 500 index, thereby continuing to drive the S&P 500 index to repeatedly reach new historical highs in the second half of the year.

With stock market traders' confidence in the imminent first rate cut since the Federal Reserve's current rate hike cycle becoming stronger, recent movements have seen stocks other than the "Magnificent 7" (Magnificent 7) that have driven stock prices soaring since 2023, especially mid-cap and small-cap stocks, rising. The small-cap benchmark index, the Russell 2000 index, has surged by about 8% since July, while the S&P 500 index has risen by less than 2% during the same period, sparking debates on whether the trend of small-cap stocks outperforming the S&P 500 index can continue.

Currently, investors' biggest question is whether the upward trajectory of the seven major technology giants, driven by artificial intelligence, can be sustained.

"The biggest risk in the U.S. stock market in the next six to eight weeks is whether we are prepared for disappointment in artificial intelligence (especially in terms of disappointment in the performance improvement brought by artificial intelligence)," said Ryan Grabinski, Managing Director of Investment Strategy at Strategas Research Partners.

The performance of the seven major technology giants may determine the profit growth trajectory of the broader S&P 500 index. According to John Butters, Senior Earnings Analyst at FactSet, the profits of four major technology giants—Google, Nvidia, Meta, and Amazon—are expected to grow by 56.4% in the second quarter compared to the same period last year. It is expected that the earnings of the other 496 companies will only increase by 5.7%.

When we combine these two sets of data, the overall earnings per share of the S&P 500 index is expected to advance at a year-on-year growth rate of 9.7%. This will be the best quarter in terms of profit growth trajectory since the fourth quarter of 2021