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Conclusion for Busy People
A reasonable strategy is to take profits during the expectation phase driven by 'Trump accounts' in the first half of next week (around Tuesday), confirm the dip on Wednesday and Thursday, and then consider re-entry based on the results of the important indicators mentioned above.
In a market downturn caused by intervention or rising interest rates, attention should also be paid to defensive sectors such as food and retail.
Rough Summary
July 2024 will be a 'fateful month' for the stock market, especially for tech and semiconductor stocks. The bullish phase driven by the 'Reverse DeepSeek Shock' that has led the market is reaching a temporary plateau due to stagnant memory prices and slowing capital inflows.
Particularly in the second week of July (around July 8th–10th), there is a high possibility of a supply-demand inflection point due to massive capital outflows for ETF dividend payouts and the start of 'Trump accounts' in the US.
With multiple warning factors overlapping—such as concerns over slowing profit margins during NVIDIA's transition to the next-generation 'Rubin' chip, rising domestic long-term interest rates, and the resurgence of geopolitical risks—we are at a critical juncture to determine whether the market peaks in July or continues to rise until September.
1. Definition of 'Reverse DeepSeek Shock' and Market Impact
This refers to the situation where the hypothesis of the 'DeepSeek Shock'—which suggested that lightweight AI models would eliminate the need for massive data centers—was overturned, and it was recognized once again that 'massive data centers and vast knowledge (memory) are justice.'
Phenomena occurring in the market:
Hyperscaler Trends: Major cloud providers (hyperscalers) have made successive contacts with companies like Fujikura (optical fiber related) and Kioxia, making the movement to strengthen data centers evident.
China's Trends: Since April, China's imports of integrated circuits have surged. Based on the judgment that knowledge (data) cannot be compressed, they are moving to strengthen their semiconductor capabilities.
Transformation of the Memory Industry: Initially, SK Hynix and Samsung Electronics had a policy of 'making profits but not reinvesting,' paying high bonuses to employees (mention of 70 million yen per person at SK Hynix). However, with the penetration of the Reverse DeepSeek Shock, they judged that the gigantism of data centers is unavoidable. They have pivoted toward large-scale capital investment and factory construction.
Concerns Regarding Changes
Easing Supply and Demand: Due to the shift to increased production and the development of resource-saving technologies by OpenAI (potential to halve resources related to inference), there are concerns that the benefits of 'price increases due to supply shortages' enjoyed so far may diminish.
Stagnation of Memory Stocks: Recently, capital inflows into memory ETFs have stopped, and signs of stock prices starting to sag are appearing for SK Hynix, Samsung Electronics, and Kioxia.
2. Technology Cycles and Earnings Outlook for Semiconductor/Tech Stocks
An 'New Product Cycle Theory' is presented, where product cycles centered on NVIDIA affect macroeconomic performance and related stocks.
NVIDIA Product Transition and the Law of Credit Deterioration:
When next-generation chips like 'Blackwell' or the subsequent 'Rubin' are released, the following patterns occur:
Lower Revenue Growth Rate: Immediately after the introduction of new products, yields are poor, and the revenue growth rate temporarily drops.
Impact on Cloud Divisions: While new products may cost twice as much, their performance is four times higher, making them cheaper for users. As a result, the revenue growth rate of the providing cloud divisions slows down, becoming a factor that worsens the credit situation in the US.
Stock Price Underperformance: In past examples (like Hopper), major stocks such as Tokyo Electron, Disco, and Advantest have shown movements underperforming the market average at the timing of product launches or improvements.
Rare Sectors Benefiting from Here
While the 'contents (semiconductors)' of data centers enter an adjustment phase, there are business opportunities in sectors related to the 'vessel (buildings).'
Power and Air Conditioning Equipment: Mitsubishi Electric, Fuji Electric, Meidensha, etc.
Statistical Data: In the US construction spending data for May, investment in data center buildings is trending strongly, and outperformance of these stocks is expected.
3. Second Week of July: Supply-Demand Inflection Point and Important Events
The market in July is expected to behave extremely unstably due to a combination of seasonal factors and specific events.
Seasonality and Supply-Demand Factors:
July Ceiling Theory: In the average of the past 20 years, the Nikkei 225 tends to reach a ceiling around July 3rd.
Dividend Payments: On July 8th and 10th, selling of approximately 1.7 trillion yen for ETF dividend payouts will occur. Since most of these funds go to the Bank of Japan, they are not reinvested in the market, resulting in a simple capital outflow.
Start of Trump Accounts: From US Independence Day on July 4th, the operation of 'Trump accounts' (tentative name) looking toward the administration from 2025 onwards will begin. Target: $1,000 provided for each child born between last year and July this year; parents can contribute up to $5,000 annually.
Scale: Funds of about 1 trillion to 6 trillion yen will first flow into S&P 500 ETFs (SPY), etc. This will be a buying factor in the first half of next week, but after that, the impact will be limited as contributions will be based on the 'order of birth.'
Supply-Demand Timeline (Scenario for Next Week)
Nasdaq 100 Rebalancing: Related to the inclusion of SpaceX, etc., supply and demand may be disrupted around the opening of the market next Tuesday.
4. Macroeconomic Indicators and Risk Factors to Watch
Domestic Interest Rates and Bank of Japan Trends:
Rising Long-Term Interest Rates: Japan's long-term interest rates have broken upward from a 'triangle consolidation,' suggesting further technical increases.
BOJ Asset Reduction: There is a possibility that the Bank of Japan is reducing its holdings of government bonds by a scale of 20 trillion yen per month, which is the main cause of rising interest rates. An increase in real interest rates works negatively for stock prices.
Currency Intervention Warning Levels
The exchange rate (160–161 yen range) is at a stage where government action is extremely close. Mr. Kinouchi analyzes the intervention warning level in 10 phases.
*Recently, a mistranslation in some media (regarding neutral interest rates) shook the market, but there is no substantial change in the authorities' stance.
Geopolitical Risk
Rising US Defense Stocks: US defense-related stocks are significantly outperforming, and the market may be sensing 'omens of war.' This could also be a factor inducing rising interest rates in Japan.
5. Divergence Points for Future Investment Decisions
There are two important indicators to judge whether the market ends in July or extends until September.
TSMC Monthly Sales (July 10): If this grows significantly, concerns that 'new products cannot be made' will be dispelled, and the tech market may reignite.
IMF World Economic Outlook (July 8): A criterion for European investors performing country allocation. If Japan's growth outlook is raised, a scenario where 'Japan buying' by Europeans continues until September can be drawn.
