U.S. Stock Market Preview | Three Major Index Futures Mixed as Powell Heads to Capitol Hill Tonight

Pre-Market Market Trends

1. As of June 25 (Wednesday), U.S. stock index futures are mixed before the market opens. As of the time of writing, Dow futures are down 0.08%, S&P 500 futures are up 0.03%, and Nasdaq futures are up 0.16%.

1. As of the time of writing, the German DAX index is down 0.52%, the UK FTSE 100 index is down 0.03%, the French CAC 40 index is down 0.44%, and the Euro Stoxx 50 index is down 0.45%.

1. As of the time of writing, WTI crude oil is up 0.75%, priced at $64.85 per barrel. Brent crude oil is up 0.53%, priced at $66.52 per barrel.

Market News

U.S. stocks face "overvaluation risk," needing interest rate cuts or impressive earnings reports to "save the day." The U.S. stock market has recently reached new highs under multiple pressures, but concerns about overvaluation persist. The S&P 500 price-to-earnings ratio has reached 22 times, significantly exceeding the long-term average of 35%, with multiple indicators showing it is at a historical high. Whether the market can continue to rise depends on whether corporate earnings can exceed expectations or if the Federal Reserve will cut interest rates. However, given the high valuation levels, the threshold for U.S. stock earnings to exceed expectations is very high; at the same time, the Federal Reserve has also indicated that it is not in a hurry to adjust policies. A Bloomberg model that considers factors such as U.S. Treasury yields, earnings per share, and equity risk premiums shows that, based on historical data, the reasonable price-to-earnings ratio for the S&P 500 index should remain around 17.7 times, while the current ratio is 23.7 times. To bring the price-to-earnings ratio back to a reasonable value level, earnings must grow by 30% over the next year (assuming stock prices remain unchanged). According to Bloomberg strategists Gina Martin Adams and Michael Casper, in addition to earnings growth, significant interest rate cuts by the Federal Reserve would also be another way to narrow the gap between the fundamentals of the S&P 500 index and market prices.

Powell will venture to Capitol Hill again, continuing to "play Tai Chi" tonight? On Wednesday, Powell will continue to testify before the Senate Banking Committee. Powell was tight-lipped about the possibility of cutting interest rates soon, leaving all options open. He reiterated his view that policymakers do not need to rush to adjust policies, contrasting with U.S. President Trump's demands and recent hints from Federal Reserve governors Waller and Bowman about the possibility of cutting rates as early as July. Powell emphasized that various outcomes are possible. He stated that if inflation is lower than expected or if the labor market deteriorates, the Federal Reserve may cut rates sooner. He also added that higher-than-expected inflation could also prompt the Federal Reserve to remain on hold, saying, "There are many possible paths here." "Can the senators extract more policy clues from him tonight?

Federal Reserve officials are divided on a rate cut in July, with several warning that tariffs could reignite inflation. While some officials expressed support for a rate cut in July, Federal Reserve Chairman Jerome Powell emphasized earlier on Tuesday during his testimony in Congress that the Fed is not in a hurry to cut rates, and he and his colleagues are observing the economy's response to various new policies, including tariffs. Fed Governor Michael Barr stated that he expects tariffs to push up inflation and supports a wait-and-see approach to interest rate adjustments. Barr pointed out that the current foundation of the U.S. economy is solid, with low unemployment and inflation having retreated to around the Fed's 2% target. He stated, "Looking ahead, I expect inflation to rise due to tariffs," adding, "Short-term inflation expectations, supply chain adjustments, and second-round effects could lead to persistently high inflation." Minneapolis Fed President Neel Kashkari noted that despite recent inflation data being "quite optimistic," the Fed needs to have a clearer understanding of the impact of tariffs on prices before adjusting policy. Kashkari stated, "Clearly, we have not yet seen the full impact of tariffs, so we are taking the time to assess the actual situation before making significant adjustments to the policy outlook."

The bond king issues a warning: the 10-year U.S. Treasury yield is unlikely to break below 4.25%, while AI drives a "mini bull market" in U.S. stocks. Bond king Bill Gross has warned U.S. Treasury bulls while bringing good news to stock market investors. This legendary figure in the bond market cautioned that due to the swelling fiscal deficit and a weakening dollar pushing up inflation, the 10-year U.S. Treasury yield will struggle to fall below 4.25%. On the other hand, Gross believes that even if the Treasury market performs poorly or economic growth is sluggish, the strong momentum of the AI era will continue to drive the stock market higher. He stated, "I recommend a 'mini bull market' strategy for stocks and a 'mini bear market' stance for bonds. The stock market, led by AI, still indicates 1-2% economic growth." Gross's bond forecast is based on historical trends, suggesting that there is no reason for yields to drop significantly from current levels. He noted that the 10-year yield typically exceeds consumer price inflation by about 1.75 percentage points.

Hedging storm is coming! Goldman Sachs warns: the dollar may accelerate its decline. Richard Chambers, global head of repurchase trading at Goldman Sachs, stated that as foreign investors increase their foreign exchange hedging efforts, the dollar may continue its worst annual start on record. This banker, who also serves as co-head of short-term macro trading at the bank, pointed out at the International Swaps and Derivatives Association conference in New York, "Given the increased market volatility, we do expect the foreign exchange hedging ratio to rise. The weakening dollar, rising foreign exchange hedging ratios, and operations to purchase U.S. Treasuries in the form of foreign exchange hedging will become far more common than 12 months ago." The Bloomberg Dollar Index has fallen over 8% this year, marking the worst annual start on record. Trump's erratic policies have stirred global markets and shaken investor confidence. There are currently no signs that overseas investors are making a large-scale exit from the U.S. bond market But Chambers predicts that foreign demand will gradually weaken. As European countries increase fiscal borrowing and spending, the market depth of the euro as an alternative reserve currency continues to strengthen, and European investors may be more inclined to stay in the domestic market.

Individual Stock News

Intensifying competition + damaged brand reputation, Tesla (TSLA.US) sees European sales decline for five consecutive months. Due to consumers turning to cheaper Chinese electric vehicles and the political stance of Tesla CEO Elon Musk causing controversy, Tesla's sales in Europe have declined for five consecutive months. In May, Tesla's new car sales in Europe fell by 27.9% year-on-year, despite a 27.2% increase in all-electric vehicle sales in the region. The American electric vehicle manufacturer's upgraded Model Y has yet to show signs of reviving its brand reputation. In May of this year, Tesla's market share in Europe dropped from 1.8% a year ago to 1.2%.

Microsoft (MSFT.US) OpenAI partnership changes? Reportedly deadlocked on shareholding terms renegotiation. OpenAI CEO Sam Altman revealed that he held a high-level meeting with Microsoft CEO Satya Nadella on Monday to engage in in-depth discussions about the future strategic cooperation between the two tech giants. This dialogue comes at a critical juncture where reports earlier this month indicated that both parties were renegotiating investment terms. It is reported that Microsoft, as OpenAI's largest investor, is negotiating core terms such as future shareholding ratios with the AI unicorn, and if no consensus is reached, the tech giant may suspend related negotiations. In response to market concerns, Altman admitted: "Any deep strategic collaboration inevitably involves alignment of views, and our cooperation with Microsoft is no exception." However, he emphasized that this dynamic adjustment has important strategic value for both parties in the long run. Notably, the partnership between Microsoft and OpenAI is facing new variables: on one hand, both sides need to reach a new balance on future equity structure and other commercial terms; on the other hand, the commercialization process that OpenAI is accelerating and the depth of integration with Microsoft's cloud business are still under exploration.

FedEx (FDX.US) performance guidance below expectations, plans to cut another $1 billion in spending in the new fiscal year. Data shows that for the fourth fiscal quarter ending May 31, FedEx's revenue reached $22.22 billion, slightly higher than $22.1 billion in the same period last year, with market expectations at $21.79 billion; net profit reached $1.65 billion (earnings per share of $6.88), higher than $1.47 billion (earnings per share of $5.94) in the same period last year; adjusted earnings per share were $6.07, with market expectations at $5.84. The company announced that it has completed its $4 billion cost reduction target and plans to save another $1 billion in spending in the new fiscal year. However, the guidance provided for the first quarter of the 2026 fiscal year was below expectations. The company expects revenue to be flat to grow by 2% year-on-year, better than the market expectation of a 0.1% decline; however, the forecast range for adjusted earnings per share of $3.40-4.00 is slightly lower than the market expectation of $4.06. As of the time of publication, FedEx's stock fell nearly 6% in pre-market trading on Wednesday Under investigation for illegal promotion of prescription drugs, Novo Nordisk (NVO.US) is being investigated by the Spanish Ministry of Health. The Spanish Ministry of Health is investigating whether Novo Nordisk, the developer of the bestselling weight loss drug Wegovy, violated advertising laws prohibiting the promotion of prescription drugs. According to a statement released by the Spanish Ministry of Health last week, Novo Nordisk has been asked to provide relevant documents regarding its online obesity awareness campaign that received endorsements from scientific associations.

NTSB criticizes Boeing (BA.US) safety culture: insufficient training and lack of oversight, MAX 9 accident could have been avoided. The National Transportation Safety Board (NTSB) stated that Boeing failed to provide adequate training, guidance, and oversight to prevent an incident in January 2024 where a new 737 MAX 9 aircraft experienced a cabin panel rupture in mid-air, leading to a significant crisis for the aircraft manufacturer. The committee also pointed out the Federal Aviation Administration (FAA)'s shortcomings in oversight. NTSB Chair Jennifer Homendy stated at a committee meeting that the incident was entirely avoidable, as the aircraft manufacturer should have addressed unauthorized production issues identified in numerous internal audits, reports, and other discussions that had existed for at least 10 years. The NTSB noted that Boeing's on-the-job training was inadequate and added that the manufacturer is making design improvements to ensure that door latches cannot close until they are securely fastened.

Important Economic Data and Event Forecast

Beijing time 22:00 US May seasonally adjusted new home sales annual total

Beijing time 22:00 Federal Reserve Chairman Powell testifies before the Senate committee on the semiannual monetary policy report

Earnings Forecast

Thursday morning: Micron Technology (MU.US)