Summary of Key Points
On July 2nd, the U.S. stock market experienced a "divided" performance: the Dow Jones Index reached a record high, while the Nasdaq fell, and the S&P 500 remained almost unchanged. This was due to the new Federal Reserve Chairman Jerome Powell's abolition of the "forward guidance" policy, which meant investors had to rely on guessing his decision-making logic. The Non-Farm Employment Data (NFEW) report, showing a significant decrease in new jobs and revisions to previous months' figures, was interpreted as positive (possibly preventing interest rate hikes), leading to strong gains in traditional blue-chip stocks. In contrast, Tesla's performance exceeded expectations but caused its stock to plummet due to the realization of these positives. High-valued AI-related sectors (such as storage and equipment manufacturers) were sold off due to uncertainty around their growth prospects, with investors shifting their funds to more stable assets like McDonald's, Apple, and gold.
I. A Divided Day in the U.S. Stock Market: One Side Celebrates, the Other Withdraws
The stock market on July 2nd was like two separate markets:
- Dow Jones Index soars 594 points to a record high: Led by established blue-chip companies like McDonald's and Disney, with the rationale being that "bad data" means the Federal Reserve would not raise interest rates, prompting investors to buy stable assets.
- Nasdaq falls 0.8%: Tech-heavy stocks, especially those in the AI sector, underperformed. For example, Tesla's delivery numbers (480,000 units vs. expected 400,000) caused its stock to drop by 7% because it had already risen by 13% in the previous four days; once the positive news was realized, investors sold.
- S&P 500 almost unchanged: Although 354 of its components (in healthcare, consumer goods, and utilities) rose, the decline in about 30% of tech stocks offsetted these gains, resulting in a minimal change in the overall index.
In simple terms: traditional stocks were thriving, while tech stocks were retreating, with the Federal Reserve's interest rate hike expectations playing a pivotal role in this divergence.
II. The Manipulation of NFEW Data: A Good-looking Unemployment Rate Comes at a Cost
The NFEW report shows the number of new jobs created each month in the U.S. (excluding agriculture) and directly influences Fed policy decisions. This time, the data was contradictory:
- On the surface, bad news: Only 57,000 new jobs were added in June (expected 115,000), with revisions downward for April and May (a total of 74,000 fewer jobs), suggesting that the previously reported job growth was exaggerated.
- On the surface, good news: The unemployment rate dropped from 4.3% to 4.2%. However, upon closer inspection, this decrease was due to a 0.3% decline in the labor participation rate (more people stopped looking for work), effectively reducing the number of unemployed.
- Real-life consequences: Wages rose by 3.5% in June, but inflation (CPI) increased by 4.2% (the highest in three years). For someone earning $10,000 per month, this means a 350-dollar increase in salary, yet prices rose by 420 dollars, resulting in a decrease in purchasing power over two months.
This report contained both positive and negative elements, but the market reacted positively because investors were only concerned about its impact on Fed interest rate decisions.
III. The Federal Reserve's Loss of Guidance: Powell Leaves the Market to Guess the Rules
The previous Fed was like a driver with a navigation system, announcing turns three kilometers in advance, allowing the market to adjust accordingly. However, with Chairman Powell's new approach, this "navigation" has been removed:
- Abolition of forward guidance: The June interest rate meeting omitted any forecasts about future rates. When reporters asked about the next step, he simply said, "We'll meet again in six weeks."
- Investors have to guess: Before the NFEW data was released, traders estimated a 62.8% chance of a rate hike in September; after the data came out, this probability dropped to 50.7%. Investors used their money to vote on this outcome, with bad data leading to a rise in the Dow Jones Index.
- A year-on-year comparison: In August 2025, similar poor NFEW data caused a significant market drop because the Fed was in a降息 mode (bad data indicated an economic slowdown). This year, however, it's at the edge of a potential rate hike (bad data suggests lower inflation pressure, so no need to raise rates).
The rules have changed: previously, Powell would provide clear guidance; now, Powell has locked the guidelines away, leaving investors to infer the rules based on market reactions.
IV. Shift in Investor Behavior: From Storytelling to Seeking Certainty
On that day, both U.S. and Korean stock markets saw declines in AI-related sectors:
- Korean Stock Market (SK Hynix): Despite announcing a $170 trillion expansion in its AI storage business, its stock fell by 14.5% because Meta plans to rent out excess AI computing power, indicating that the demand for such resources may no longer be as high.
- U.S. Stock Market (AI Sector): Storage company Micron lost 5.5%, and equipment manufacturer Corning fell 11.5%. Their valuations were based on the assumption of unlimited AI-related spending, which seems less realistic given current market conditions. In contrast, Nvidia (closer to actual orders) only dropped by 1.4%, while Netflix (not heavily dependent on AI) rose by 5%.
Investors are prioritizing assets with clear and stable fundamentals: McDonald's (stable consumer demand), Apple (strong cash flow), and gold (a trusted asset with a long history of value). Stories that require multiple assumptions to come true are being devalued.
V. Implications for the A-share Market
On Thursday, the Chinese A-share market also declined alongside U.S. chip stocks. However, it's important to note that whether the Fed raises interest rates in the U.S. has little direct impact on China's interest rates and economic environment. China has its own indicators to assess the situation. Don't blindly follow the trends in the U.S. stock market; instead, focus on your own domestic fundamentals.
In summary: The July 2nd market performance reflected investors' uncertainty about the new Fed chairman's policies. While previous decisions were based on clear guidance, now everything depends on speculation, with certainty becoming the most valuable factor.