On Tuesday (August 4), US major indices showed mixed performance. The Dow Jones Industrial Average rose slightly by 0.1%, the S&P 500 was basically flat, while the Nasdaq fell by 0.4% due to profit-taking in large-cap tech stocks. However, the real highlight of the market was the small-cap index—the Russell 2000 surged 1.3%, closing at a record high of 2,438 points, indicating that funds are accelerating from large-cap growth stocks to small and mid-cap value stocks.
JOLTS Data Weakness Strengthens September Rate Cut Expectations
The direct catalyst for this rotation was the June JOLTS job openings data released by the US Department of Labor that day. The data showed job openings fell to 6.4 million, below the market expectation of 6.7 million, and hit a new low since early 2021. This report was interpreted by the market as the job market steadily cooling, easing the Fed's concerns about inflationary pressures, and pushing the probability of a September rate cut to 88% in the federal funds futures market.
Lower interest rate expectations are particularly beneficial for small businesses that rely on financing costs. Looking back at history, small-cap stocks have often outperformed the broader market before each Fed rate cut cycle. Statistics from research firm Ned Davis Research show that in the past six rate cut cycles, the Russell 2000 index has outperformed the S&P 500 by an average of 6.2 percentage points in the three months before the first rate cut.
Sector Rotation Accelerates, Tech Stocks Show Profit-Taking
The impact of fund outflows is most evident in tech giants. Apple (AAPL) fell 1.1% due to market concerns about its continued market share erosion in China's smartphone market by local brands; Microsoft (MSFT) fell slightly by 0.3% as some investors chose to lock in substantial gains year-to-date. In contrast, NVIDIA (NVDA) rose 0.8% against the trend, mainly benefiting from positive news about order visibility for its latest AI chip Blackwell Ultra, showing that AI computing demand remains strong.
From a sector fund flow perspective, healthcare, utilities, industrial, and financial stocks in the S&P 500 all closed higher, while information technology and communication services lagged. Bank of America Securities' fund flow weekly report showed that over the past five trading days, tech stocks had net selling of over $12 billion, the largest scale since March, while small-cap funds had net inflows of $4.5 billion.
Chinese Stocks Rebound, Alibaba and JD Lead
Notably, Chinese stocks experienced a rare collective rebound. The Nasdaq Golden Dragon Index rose 2.1%, ending a three-day losing streak. Alibaba (BABA) surged 3.2%, JD rose 2.8%, and Pinduoduo (PDD) gained 1.9%. The rebound momentum came from two aspects: first, the State Council of China announced a new batch of policies to support the platform economy the previous day, boosting market sentiment; second, as international profit-taking in US tech stocks, funds顺势回补 undervalued Chinese stocks.
However, analysts warn that the bottom signal for Chinese stocks has not been fully established, and there are still variables in Sino-US audit regulatory details. The short-term rebound should be regarded as a technical correction rather than a trend reversal.
Pre-Nonfarm Data Defense, Market Cautious
Looking ahead, market focus has locked in on the July non-farm employment report to be released this Friday (August 7). Currently, economists estimate that new employment numbers will be 180,000, with the unemployment rate unchanged at 4.1%. If the data is too strong, it may dampen rate cut expectations; conversely, if the data is significantly weaker, it may intensify recession fears. Therefore, today's fund rotation has a strong hedging nature—investors want to participate in the rate cut scenario but fear a hard landing, so they choose small and mid-cap stocks that balance defense and upside potential.
The Chicago Board Options Exchange Volatility Index (VIX) fell 2% to 15.6, still at a relatively low level, indicating that the market as a whole has not yet shown panic sentiment, but it also means that investors are quite confident in the Fed's ability to achieve a soft landing.
Operational Strategy: Focus on Rate-Sensitive Sectors and Earnings Season End
As the second-quarter earnings season approaches its end, over 80% of S&P 500 constituents have now reported results, with overall earnings growth of about 9%, better than expected. The next stock selection logic should place more emphasis on the sensitivity of individual stock fundamentals to the interest rate environment. Goldman Sachs suggests that before rate cuts are implemented, investors can appropriately increase allocations to the Russell 2000, regional banks, and real estate investment trusts (REITs), while reducing holdings of large-cap tech stocks that have already risen significantly in the past two years.
The US stock market is at a delicate crossroads: on one hand, economic data support the Fed easing policy; on the other hand, inflation stickiness and geopolitical risks have not disappeared. At this moment, chasing highs and selling lows is not the best strategy. Patiently selecting leading companies with reasonable valuations and earnings support, or finding catch-up opportunities in rotation, may be the best strategy to cope with August's volatile market.
