Investment Rating - The report does not explicitly provide an investment rating for the industry or specific companies Core Insights - Overall demand for US equities has declined, but there is no significant selling observed, with net flows feeling lower due to unusually high flows in the second half of 2024 [4][6] - Europe has emerged as the primary destination for equity fund flows, with a notable increase in flows to European equity funds while flows to US stocks have decreased [9][10][12] - European investors hold €2.6 trillion of US debt, representing over 10% of fixed income assets in the euro area, indicating a significant cross-border investment [21] - Strong inflows to European fixed income funds have been observed since 'Liberation Day', although this has not yet translated into increased demand for European debt securities [24][29] - The EUR/USD exchange rate is expected to rise to 1.27 by the end of 2026, driven by both fundamental and technical factors, with increased hedging incentives due to rising volatility [34][42] - European equities are projected to show a consensus EPS growth of 1.3% in local currency terms for 2025, but in USD terms, this growth is expected to be 7.6%, indicating a favorable outlook for European stocks [63][65] - The European securitized market, currently valued at approximately €550 billion, has potential for growth due to ongoing regulatory reforms, which could lead to substantial market expansion [69][81] Summary by Sections Fund Flows - Demand for US stocks has decreased, but there is no evidence of significant selling; net flows to US equities are lower due to high previous flows [4][6] - Europe is now the leading destination for equity fund flows, with minimal spillover to other regions [9][10][12] European Debt Holdings - Euro area investors own €2.6 trillion of US debt, which is over 10% of their fixed income assets [21] - Evidence of stronger inflows to European fixed income funds has emerged, but this has not yet impacted demand for European debt securities [24][29] Currency and Hedging - The EUR/USD exchange rate is forecasted to reach 1.27 by the end of 2026, influenced by fundamental and technical factors [34] - Increased volatility and uncertainty are raising hedging incentives, with approximately $4 trillion in unhedged US assets potentially needing hedging [42] European Equities - European consensus EPS growth for 2025 is projected at 1.3% in local currency, but 7.6% in USD terms, indicating a positive outlook for European stocks [63][65] Securitized Market - The European securitized market is valued at around €550 billion and has potential for growth due to regulatory reforms [69][81]

Core Viewpoint - Federal Reserve Chairman Jerome Powell acknowledged that the Fed would have already lowered interest rates if not for the tariff policies, indicating a potential shift in monetary policy due to external economic pressures [8]. Group 1: Federal Reserve and Interest Rates - Powell stated that the Fed's decision on potential rate cuts in July will depend on economic data, with a majority of Fed members expecting another rate cut later this year [8]. - Goldman Sachs has revised its forecast for Fed rate cuts to September, predicting three cuts this year, with the final rate forecast adjusted from 3.5%-3.75% to 3%-3.25% [8]. Group 2: Stock Market Performance - The U.S. stock market showed mixed results, with the Dow Jones increasing by 0.91% to 44,494.94 points, while the S&P 500 and Nasdaq fell by 0.11% and 0.82%, respectively [6][7]. - Bank of America reported that the S&P 500 reached a new high, but there was a significant net sell-off in U.S. stocks, marking the largest outflow in ten weeks [9]. Group 3: Banking Sector Developments - Several major banks on Wall Street announced dividend increases following successful stress tests, leading to a rise in bank stocks [3][15]. - Goldman Sachs plans to increase its common stock dividend by 33% to $4.00 per share, while JPMorgan Chase will raise its quarterly dividend from $1.40 to $1.50 per share [15]. Group 4: Oil Market Insights - International crude oil prices saw a slight increase, with Brent crude rising by 0.30% to $66.94 per barrel and WTI up by 0.52% to $65.44 per barrel [17]. - Market concerns are growing regarding OPEC+ potentially announcing an increase in production by 411,000 barrels per day at their upcoming meeting [18]. Group 5: Legislative Developments - The U.S. Senate passed a comprehensive tax and spending bill, referred to as the "big and beautiful" plan, which will now be debated in the House of Representatives [20][21].

Core Viewpoint - Major Wall Street banks announced significant shareholder dividend plans after passing a more lenient "stress test" by regulators, aligning with the Trump administration's push for relaxed banking regulations [1] Group 1: Stress Test Results - Several large banks, including JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley, reported plans to increase quarterly dividends to shareholders [1] - JPMorgan Chase and Morgan Stanley also announced stock buybacks worth several billion dollars [1] - This year's stress test was the first attempt following the Federal Reserve's adjustment of testing scenarios, with the theoretical recession severity being less severe than last year's [1] Group 2: Regulatory Context - The new testing framework was established before President Trump's re-election campaign but coincides with his administration's advocacy for easing banking regulations [1]

Market Capitalization Summary - Oracle has a market capitalization of 806.88 billion, while Visa stands at 655.99 billion [2] - Procter & Gamble has a market capitalization of 378.02 billion, and ExxonMobil is at 512.70 billion [2] - Mastercard's market capitalization is 470.87 billion, and Bank of America is at 375.11 billion [2] - UnitedHealth has a market capitalization of 308.53 billion, while ASML is at 310.77 billion [2] - Coca-Cola's market capitalization is 295.75 billion, and T-Mobile US Inc is at 273.60 billion [2] Stock Performance - Oracle's stock increased by 0.46 (+0.47%), while Visa's rose by 0.47 (+0.13%) [2] - Procter & Gamble's stock saw a slight increase of 2.68 (+0.48%), while ExxonMobil's stock increased by 1.92 (+1.20%) [2] - Mastercard's stock increased by 1.46 (+1.35%), and Bank of America's stock rose by 3.15 (+2.06%) [2] - UnitedHealth's stock decreased by 11.21 (-1.40%), while ASML's stock increased by 0.93 (+1.31%) [2] - Coca-Cola's stock increased by 14.05 (+4.50%), and T-Mobile US Inc's stock rose by 3.31 (+1.39%) [2] Additional Company Insights - McDonald's has a market capitalization of 212.78 billion, while AT&T is at 207.73 billion [3] - Uber's market capitalization is 192.79 billion, and Verizon's is at 184.08 billion [3] - Caterpillar's market capitalization is 183.87 billion, while Qualcomm is at 174.99 billion [3] - BlackRock has a market capitalization of 163.25 billion, and Citigroup is at 161.13 billion [3] - Boeing's market capitalization is 158.16 billion, while Pfizer is at 142.36 billion [3] Recent Market Movements - Intel's stock increased by 0.45 (+1.99%), while Dell Technologies rose by 0.82 (+0.16%) [4] - Rio Tinto's market capitalization is 746.07 billion, and Newmont is at 654.78 billion [4] - General Motors has a market capitalization of 494.87 billion, while Target is at 472.00 billion [4] - Ford's market capitalization is 451.14 billion, and Valero Energy is at 432.26 billion [4] - Vodafone's market capitalization is 241.45 billion, while Pinterest is at 270.30 billion [5]

Industry Overview - The Zacks Investment Bank industry is expected to benefit from increased trading income due to heightened market volatility and client activity amid geopolitical and macroeconomic uncertainty [1][4] - Investments in artificial intelligence (AI) and technology are anticipated to enhance long-term efficiency despite short-term cost pressures [1][7] - The industry consists of firms providing financial products and services, including advisory-based financial transactions to corporations, governments, and financial institutions [3] Current Trends - The trading business is projected to remain solid, with client activity influenced by macroeconomic and geopolitical conditions, leading to increased trading income [4][6] - Underwriting and advisory businesses are showing signs of recovery after a slump, with expectations of a rebound in investment banking activity [5][6] - Technology investments are expected to improve operational efficiency, despite rising technology-related expenses in the near term [7] Performance Metrics - The Zacks Investment Bank industry ranks 97, placing it in the top 39% of over 250 Zacks industries, indicating solid near-term prospects [8][9] - The industry has outperformed the S&P 500 and the broader finance sector, with a collective stock surge of 34.1% over the past year compared to 11.7% for the S&P 500 [11] - The trailing 12-month price-to-tangible book ratio (P/TBV) for the industry is 2.81X, significantly lower than the S&P 500's 13.14X, indicating a discount compared to the broader market [14][16] Key Players - **Morgan Stanley**: With a market cap of $225.7 billion, the company is focusing on diversifying its revenue sources and has seen a 42% increase in shares over the past year [22][19] - **Goldman Sachs**: This company has a market cap of $212 billion and has experienced a 52.6% share price increase over the past six months, supported by robust client engagement and digital transformation [27][24] - **Robinhood**: With a market cap of $73.5 billion, Robinhood's shares have soared 310.8% in the past year, driven by its commission-free trading model and efforts to expand its product base [32][29]

Core Viewpoint - The "OBBBA" bill, which focuses on comprehensive tax reform and targeted incentives, has passed the Senate with a narrow vote of 51-49, expected to expand the federal deficit, drawing warnings from rating agencies and criticism from various parties, while some banks believe it could boost the U.S. economy [2] Advantages - The OBBBA is seen as crucial for extending the expiration of key tax provisions from the 2017 Tax Cuts and Jobs Act, which, if left unaddressed, could suppress household consumption and business investment [3] - The bill allows for faster capital investment deductions, potentially enhancing investment in the coming years, although it may sacrifice future investment [3] - Analysts from Citigroup anticipate that the passage of the bill, along with recent trade agreements, will improve growth sentiment, and they expect the Federal Reserve to ease monetary policy [3] Disadvantages - Critics highlight concerns over the projected increase of at least $3 trillion in the deficit over the next decade, as estimated by the nonpartisan Congressional Budget Office [4] - Morgan Stanley points out that while the tax provisions may benefit key sectors, they could raise concerns about fiscal sustainability [4] - Erica York from the Tax Foundation criticizes the bill as irresponsible fiscal policy that will significantly increase budget deficits and debt, noting that many tax cuts are poorly designed and may create administrative burdens for the IRS [4]

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific companies covered. Core Insights - The timing of tariff impacts on the economy will depend on the actual application of tariffs and the outcomes of ongoing negotiations [4] - Trade negotiations typically take years rather than months, indicating that any near-term outcomes may be limited to framework agreements or narrow deals [8] - The interaction between country-specific tariffs and sector-based tariffs remains uncertain, with upcoming deadlines in July and August expected to provide clarity [9][11] Summary by Sections Trade Negotiations and Tariffs - A series of tariff deadlines are approaching, with significant negotiations involving the US, Japan, India, Mexico, and Canada in July, followed by China in August [9] - Historical experiences suggest that trade negotiations can span several years, with the UK-US trade agreement serving as a reference point for future deals [12][22] - The report anticipates that the administration may seek to extend the July 9 deadline, citing progress in trade discussions [11] Economic Implications - Opinion polling indicates that voters do not currently perceive a negative impact from tariffs, which may reduce political risks associated with tariff escalations [13] - The economic effects of tariffs have not yet manifested in hard data, with delays expected in the transmission of price changes due to tariffs [30][31] - The report highlights that the effective tariff rate is expected to stabilize around mid-teens percentages, with ongoing legal challenges and negotiations influencing final levels [11][33] Sector and Country Tariffs - The report discusses the complexity of how country and sector tariffs will interact, particularly in the context of the USMCA and ongoing bilateral negotiations [15][16] - The categorization of trade with Canada and Mexico will significantly affect tariff levels, with a mix of Most Favored Nation (MFN) and USMCA compliance currently in place [20] - The transition from country to sector tariffs is a key focus, with implications for supply chains and revenue generation from tariffs [21][34]

Investment Rating - The report maintains a bullish outlook on U.S. Treasuries (USTs) and a bearish stance on the U.S. Dollar (USD) [1] Core Insights - Tariffs are significant, with U.S. government revenue from tariffs annualizing over 1% of U.S. GDP, indicating that they do not represent a zero-sum game [1] - U.S. importers paid tariffs equivalent to 65% of corporate income taxes in 2024, and these tariffs represented 15% of non-financial corporate profits after tax in Q1 2025 [10][11] - If corporations absorbed all tariff expenses, profit margins would have fallen to 11.7% from 13.8%, below the 15-year moving average of 12.2% [10][26] Summary by Sections Tariff Impact - U.S. importers' tariff payments in June annualized to $327 billion, or 1.1% of Q1 2025 nominal GDP [12][16] - The analysis suggests that tariffs act as a significant tax burden on corporations, impacting profit margins and overall economic growth [11][29] Corporate Profit Margins - In Q1 2025, non-financial corporations reported $2.127 trillion in profit after tax, with profit margins sitting at 13.8% [22] - The report highlights that if tariffs were fully absorbed, profit margins would drop significantly, indicating potential economic stress [26][34] Economic Outlook - The report suggests that the economic backdrop is skewed to the downside, with airline passenger traffic slowing and potential impacts from tariffs expected to manifest in inflation data [30] - The recommendation is to stay long U.S. Treasuries and short the USD, reflecting a cautious economic outlook [1][30]

Investment Rating - The report does not explicitly state an investment rating for the industry Core Insights - The manufacturing PMI for June increased by 0.2 percentage points month-on-month to 49.7, slightly surpassing consensus expectations of 49.6, driven by strong fiscal front-loading [7] - Export momentum is weakening, with the new export order index rising only 0.2 percentage points month-on-month, remaining significantly below pre-tariff levels, indicating a potential end to strong US-bound shipping [3][4] - Real GDP growth is expected to decline from 5% year-on-year in Q2 to 4.5% in Q3 due to fading export front-loading and muted stimulus measures anticipated from the government [4][7] Summary by Sections Manufacturing Sector - The June manufacturing PMI rose to 49.7, supported by stronger new orders and production, particularly in consumer goods and base materials [2][7] - The construction PMI also saw a notable increase of 1.8 percentage points month-on-month to 52.8, reflecting ongoing fiscal support for infrastructure spending [2] Export Dynamics - The new export orders index showed a slight increase but remains low compared to historical levels, suggesting a slowdown in export activities [3][4] - Container throughput has weakened, indicating a broader decline in export volumes to various destinations [3] Economic Outlook - The report anticipates a decrease in real GDP growth to 4.5% year-on-year in Q3, influenced by the diminishing impact of export front-loading and a lack of significant new fiscal stimulus [4][7] - A modest supplementary fiscal stimulus of Rmb0.5-1 trillion is expected to be introduced by the government in late Q3 or early Q4 if economic data continues to show weakness [4]

Investment Rating - The report indicates a solid investment outlook for the China economy, with expectations of a supplementary budget of Rmb0.5-1 trillion in response to weaker data in the coming months [3]. Core Insights - The report highlights a robust performance in Q2 2025, but notes a softening momentum, suggesting that a fall stimulus is likely to be implemented [2][3]. - Structural reforms are deemed essential for sustained economic reflation, with a focus on social welfare reform, debt restructuring, and improving fiscal governance [3]. - Retail sales have remained strong, particularly in the auto and home appliance sectors, although there are concerns about subdued sales in other consumer goods categories [5][7]. - Exports are expected to slow further, despite a rebound in US-bound shipping, indicating potential challenges in international trade [10][12]. - The housing market is experiencing a downturn, with secondary home sales weakening and local government financing pressures increasing [15][20]. Summary by Sections Economic Performance - Q2 2025 data shows solid economic performance, but momentum is softening, leading to expectations of a fall stimulus [2][3]. - Retail sales in June were strong, driven by front-loaded demand in the auto and home appliance sectors [5]. Policy Outlook - The report anticipates a supplementary budget of Rmb0.5-1 trillion to address weaker economic data in the upcoming months [3]. - Structural reforms are necessary for sustained reflation, focusing on social welfare, debt restructuring, and fiscal governance [3]. Trade and Exports - Exports are likely to slow further, with June showing a decline despite a rebound in US-bound shipping [10][12]. - Container throughput at major ports has slipped sharply, indicating challenges in trade logistics [11]. Housing Market - The housing market is under pressure, with secondary home sales weakening and local government financing facing challenges [15][20]. - Major tax revenues and land sales have underperformed, contributing to fiscal pressures [20]. Construction Activity - Weak construction activities are indicated by subdued demand for rebar and cement, suggesting a slowdown in overall construction [21][23]. RMB Internationalization - The report discusses the roadmap for RMB cross-border settlement and highlights the importance of stablecoins in reinforcing dollar dominance in the near term [27][28].