The "Big Seven" earnings report disclosed a poor start, the Nasdaq technology ETF fell for five consecutive years, and the U.S. stock style may cut to a small cap

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Blue Whale News, July 25 (Reporter Ao Yulian) Affected by the U.S. market on the other side, at the close of trading on July 25, QDII funds invested in U.S. stocks fell across the board, down about 3%.

Since the release of the CPI United States on July 11, the S&P 500 index has started a correction, and the net value of cross-border ETFs has also been on a "roller coaster". For example, the Nasdaq Technology ETF, which was the top gainer in the first half of the year, has fallen by 11.21% for the fifth consecutive year, while the premium has narrowed to less than 10%.

However, while the S&P 500 fell, the Russell 2000 index, which represents small-cap stocks, bucked the trend in the past two weeks. A number of interviewed institutions believe that the market style may change from the "thick eyebrows" large-cap style to the small-cap style, but the "Big Seven" and other large-cap stocks have good fundamentals, and there is still upward momentum, but we need to be wary of short-term high-level corrections.

The performance disclosure started unfavorably, with the "Big Seven" leading the decline

On July 24, local time, the "Big Seven" of U.S. stocks ushered in a dark moment: Tesla fell 12.33%, Nvidia fell 6.80%, Meta fell 5.61%, Google fell 5.05%, Microsoft fell 3.60%, Amazon fell 2.96%, and Apple fell 2.84%. A quick pullback from tech giants dragged down the three major stock indexes, with the S&P 500 posting its biggest one-day drop since late 2022.

On the news side, at present, among the "Big Seven" of the U.S. stocks, only Tesla and Google have released their second-quarter financial reports, and they have direct negative data or negative interpretations.

On July 23, local time, Tesla and Google's parent company Alphabet both disclosed their second-quarter financial reports. Tesla's second-quarter net profit was $1.47 billion, down 45% from a year earlier and well below analysts' consensus estimate of $1.9 billion. In the subsequent earnings call, Musk also said that he would postpone the release of RoboTaxi from August to October.

Google's parent company Alphabet also released its second-quarter earnings report on the same day, with total revenue exceeding expectations, up 13.6% year-on-year, but Youtube's advertising revenue increased by 13% year-on-year, slowing down from the first quarter. At the same time, Alphabet said in a subsequent conference call that the number of employees may increase in the third quarter, when the profit expansion trend may be disrupted.

In this regard, Hu Chao of the International Business Department of Tianhong Fund told Blue Whale News that the U.S. stock market has recently entered the second quarter financial report disclosure period, and the performance verification of leading companies will become the focus of the market game. If the performance is less than expected, it may bring about a rapid adjustment of individual stocks, which in turn will affect the performance of the stock index.

U.S. stock QDII: net value pullback, premium narrowing

Affected by the "Dark Wednesday" in the U.S. market overnight, QDII funds investing in U.S. stocks also fell across the board.

At the close of trading on July 25, the QDII of U.S. stocks led the decline, with a decline of about 3%. Among them, Nasdaq Technology fell 3.75%, S&P 500 ETF fell 3.44%, United States 50 ETF fell 3.17%, and Nasdaq 100 ETF fell 3.06%.

In fact, the QDII of U.S. stocks, which rose sharply during the year, has been adjusted for many days, resulting in holders experiencing a "roller coaster".

Taking the popular fried chicken Nasdaq Technology ETF as an example, from July 19 to July 25, the product fell "five times in a row", falling by 11.21%. However, combined with the previous returns, it is still the fund that has risen the most year-to-date, with a current increase of 35.40%.

At the same time, the continuous decline has sharply narrowed the premium of the Nasdaq Technology ETF by more than 15% before: the closing premium was 6.91% on July 24 and 8.01% on July 25, and the capital speculation has cooled significantly.

Multiple public offerings: U.S. stocks may switch from large to small caps

For U.S. stocks, the general concern of the market is: what is the future trend of U.S. stocks? Is there a bubble in the "Big Seven"? Is there any value in cross-border ETFs?

A number of interviewees told Blue Whale News that the United States stock market is switching styles, and small-cap stocks such as Russell 2000 may have more investment opportunities.

At the level of the Big Seven of the U.S. stock market, in fact, both Wall Street and the Chinese stock market have views that it has reached the eve of the bursting of the Internet bubble in 2000. In this regard, a number of institutions said that the valuation is indeed not cheap, but the fundamentals are solid and not highly bubble.

"The structure of U.S. stocks is relatively differentiated, the overall valuation is not cheap, and the market has given higher valuations to leading companies with higher certainty." Hu Chao of Tianhong Fund believes that the high-certainty leading companies represented by the Big Seven are not cheap.

Valuations are not so high as to bubble, though.

Huang Senwei, senior market strategist of AllianceBernstein Fund, analyzed that the estimated price-earnings ratio of the Big Seven in the next 24 months is about 25 times, while before the Internet bubble in 2000, the price-earnings ratio of the leading companies increased to 52 times. Valuations aren't too high by comparison.

According to Huang Senwei's analysis, the current profitability of the seven major U.S. stocks is better: less debt, higher return on net assets and higher net profit margin. For example, the net debt-to-net assets ratio of the Big Seven is -36%, compared to -4% on the eve of the dot-com bubble burst in 2000. At present, the return on equity of the Big Seven of the US stock market is 44%, far exceeding the 28% of the Internet Seven in 2000; Moreover, the net profit margin of the Big Seven of the US stock market is also relatively high, at 27%, compared with 16% in 2000.

"United States technology companies are actually profitable and not overvalued, unlike the dominant companies that were in the past few bubble bursts." Huang Senwei said that from the perspective of valuation and profitability, it is still too early to say that the Big Seven are on the eve of the bubble.

However, compared with technology giants, Huang Senwei believes that there may be better investment opportunities in small-capitalization stocks in the United States, and the market style may have a phased rotation.

"From a corporate financing perspective, 81 percent of United States large-cap companies have fixed interest rate borrowing costs, compared to 63 percent of small-cap companies, and another 30 percent of small-cap companies have variable rates. If the Fed cuts interest rates, small-cap stocks with a high proportion of floating rates will be much less stressed to repay their debts. Huang Senwei explained that if the Fed starts cutting interest rates in the second half of this year, the pressure on small-cap stocks will be slightly released.

Huabao Fund International Business Department holds a similar view, from the recent release of United States CPI data, the US stock market is undergoing a more radical style change, hedge funds are from the early rise of the technology leader, to the early stagnation of small and medium-cap sectors, cyclical sectors, but the market still has fundamental support.

On July 11, United States released CPI data. Wind data shows that since July 11, the Russell 2000 index (representing small-cap stocks) is up 7.00%, and the S&P 500 index (representing large-cap stocks) is down 3.67%.

For the U.S. technology stocks, which account for a large proportion of the market, the international business department of Huabao Fund believes that the U.S. technology sector has risen significantly since the beginning of this year, and short-term fluctuations are inevitable. However, in the medium and long term, the development trend of the AI technology revolution in United States has not been fundamentally reversed, and short-term stock price fluctuations have not changed the general direction of long-term U.S. technology stock fundamentals.