The Most Worthwhile Review of This Week

This week, it’s worth acknowledging that the market isn’t particularly strong: SPY has fallen 1.95% over the past month, and QQQ has dropped by 4.50%. But what’s truly noteworthy is not just the decline, but a shift in market dynamics: while U.S. employment numbers have suddenly weakened, the ECB continues to lean towards tighter monetary policy. ETF Radar observes that as a result, there are now clear divergences in direction for U.S. equities, bonds, tech stocks, banks, and Chinese assets.

Key Changes This Week

• US Broad Market Shifts from Bearish to Mixed: SPY shifts from bearish to mixed, and VTI also moves from bearish to mixed. The core change is that the US June non-farm payroll came in at only +57k, significantly weaker than expected, leading the market to reduce concerns about further rate hikes. - Tech Stocks Cool Down: QQQ shifts from bullish to mixed, with AIQ signals clearly weakening. In essence, the long-term story for tech remains, but the evidence supporting its continued outperformance in the short term is not as strong as it was last week. - Small-Cap Stocks Turn Positive: IWM shifts from mixed to positive. Small-cap stocks are more sensitive to high interest rates and expensive financing, so weaker employment gives them a breather. - Energy Sector Turns Positive: XLE shifts from bearish to positive, primarily due to supply disruptions in the Middle East. With less supply, oil prices can be more easily pushed higher, benefiting energy stocks. - Cryptocurrency-related ETFs Suddenly Weaken: FBTC shifts from neutral to bearish, with new entries ARKB, BITO, and BLOK also turning bearish. The core issue is not price but large net redemptions of the spot Bitcoin ETF. - Chinese Internet Stocks Turn Bearish: KWEB shifts from neutral to bearish, with FXI’s bearish signals strengthening. Regulatory and funding dynamics have yet to show sustained inflows. - New Actionable Opportunities Enter the Picture: KBE turns positive, QQQ turns negative, SOXX and XLK turn positive, KWEB and MCHI turn negative, and ITA turns positive. These are the most noteworthy directions within this week’s system.

This Week's Main Story 1

Weaker employment has turned the market around.

The most important macro change this week came from US employment. The latest June non-farm payroll figure was only +57k, below the expected +110k and also below the model-referenced range of +114k. What does this mean? In plain terms, it indicates that the number of new jobs added is less than anticipated, suggesting that the economic engine may be slowing down a bit.

Why does this affect ETFs? Because weaker employment means the market will feel less necessity for the Fed to keep interest rates high. In simple terms, interest rates are like the 'rent' on funds across the entire market. Rent is not so easily allowed to continue rising, which will provide some degree of relief to small caps, banks, and even certain growth stocks that are sensitive to financing costs.

However, this line is not unilaterally bullish. Because slower economic growth would also dampen corporate earnings. So, this week is not a 'full turn to optimism', but the market is reassessing who is more afraid of higher interest rates and who is more afraid of slower economic growth.

Now for small caps. The ETF Radar model is generally positive towards IWM, with signals typically strong. Many small-cap businesses are more reliant on the U.S. market, making borrowing costs a more direct impact on them. Previously, there was concern about high interest rates suppressing them, but now that employment has weakened, the market seems to be thinking: perhaps the most stringent period is coming to an end. This logic supports IWM turning from mixed to positive this week.

Now for the banks. The readings are positive for KBE, with multiple pieces of evidence pointing in the same direction. Many might wonder if weaker employment is not good for banks? Here we need to look at it separately. The main trend that the system sees is not just about weak employment in the US but also the ECB continuing to tighten. Tightening, in plain terms, means money will not easily become cheaper. Banks make their profit from interest rate spreads, which is the difference between borrowing short-term and lending long-term. With the ECB tightening its stance and the US not immediately easing despite weaker employment, this environment may not be bad for bank stocks. In the past month, KBE has risen by 9.06%, and the tape also validated this judgment.

Looking at the broader market. ETF Radar is on hold for SPY, with a mixed signal. The reason is straightforward: weak US employment supports valuations; however, the ECB's tightening and rising global interest rates are putting pressure on valuations. These two forces are in conflict, so SPY has turned to a mixed stance rather than going directly bullish. In the past month, SPY has fallen by 1.95%, indicating that the market remains more cautious during this period.

Finally, let's look at QQQ. This is the most interesting part. Typically, a bit less interest rate pressure should be good for tech growth. However, this week did not see a clear strengthening; instead, it moved from slightly positive to mixed. The reason is that another hand is still pressing it: the ECB.

So, for this week, the key sentence would be: US employment weakened, changing the single narrative of ‘rates will only get tighter’ but did not directly send the market back into full risk-on mode.

This Week's Main Story 2

The ECB is still tightening and continues to pressure tech and bonds.

The second main line, which is actually more important than many realize: the ECB has not clearly shifted to a dovish stance but instead continues to use institutional actions to confirm that 'accommodative policies during crises need to be gradually withdrawn'.

The key trigger this week was the ECB's announcement to include non-financial company credit claims portfolios in the general collateral framework and gradually phase out temporary measures. In plain terms, during the pandemic, the central bank temporarily relaxed some rules to help markets borrow more easily and smoothly; now it is gradually reversing these 'special accommodations'.

Why actions in Europe affect US ETFs is because global large-scale capital looks at the entire interest rate environment, not just the US. As long as one of the major central banks remains tight, global long-term interest rates are unlikely to drop quickly. Long-term interest rates, simply put, reflect market expectations for funding costs over many years. When these rates are high, they are not friendly to tech stocks and long-duration bonds. Duration, in simple terms, refers to how sensitive prices are to changes in interest rates; the more sensitive it is, the more fearful of rising rates.

Now for technology. The ETF Radar model is slightly negative towards QQQ, but the signal is mixed. Why just 'slightly negative'? Because weak US employment is indeed providing a floor, so it’s not a one-way bet. However, the ECB line continues to put pressure on high-valued growth stocks, especially given that QQQ has fallen by 4.50% in the past month, which supports this more cautious assessment.

Now for bonds. Data is slightly negative for TLT, with evidence still somewhat focused. What do long-term bonds fear most? They fear the market believing rates will stay higher for longer. While weak employment data may provide a short-term breather to bonds, multiple non-price indicators systemically observed, such as the 10-year US Treasury yield at around 4.48%, CFTC positions being bearish, and reduced purchases from Japan’s policy normalization, continue to weigh on long-term bonds. TIP fell by 1.49% in the past month, aligning with the view that rates are unlikely to fall quickly.

Another relevant sector: real estate. The model is slightly negative on VNQ, with mixed signals. Real estate ETFs are very sensitive to high financing costs because the industry is heavily capital-intensive. The discount rate, in plain terms, refers to the market interest rate used to discount future cash flows; a higher discount rate can easily depress asset valuations. With the ECB continuing to tighten, it serves as a reminder that global funding costs are not set to revert to cheaper levels anytime soon, putting ongoing pressure on assets like VNQ.

The key point of this line is not that 'Europe is more important than the US,' but rather to remind the market: don't get too bullish on the 'full rate cut trade' just yet.

This Week's Main Story 3

Cryptocurrencies and Chinese assets have yet to see any genuine repatriation.

The third line, which can be discussed together as they share a common feature: prices occasionally rebound, but the funding situation has not yet provided a convincing confirmation.

Now let's look at the crypto-related aspects. ETF Radar is negative towards FBTC, with signals being quite consistent. The new entries ARKB, BITO, and BLOK are also all negative. The core reason is straightforward: Bitcoin ETFs in the U.S. saw outflows of approximately $4.5 billion for the entire month of June, with about $1.79 billion in outflows for the week, and even single-day large outflows. The creation and redemption of ETFs, in simple terms, are direct signs of whether new money is coming in or old money is going out. Continuous net redemptions mean that demand for spot Bitcoin is being withdrawn, which is a structural headwind for related ETFs. Of course, regulatory progress could be positive in the future, but it's still an early signal at this point.

Now looking at Chinese internet stocks. The readings are generally negative for KWEB, with a strong signal. This week it shifted directly from neutral to slightly negative. The issue is not the lack of policy actions but that the fund and option data have yet to show sustained inflows. In options, put IV is higher than call IV, meaning there is more willingness in the market to buy protection against declines. Additionally, with net outflows of approximately -$121.7 million over the past 20 days, it indicates continued caution. Although KWEB rebounded by 5.76% in just five days, it has still fallen by 11.79% over the last month, so this more resembles a short-term correction and is not enough to overturn the main judgment.

The major Chinese market is similar. The system is slightly negative on FXI, with multiple pieces of evidence pointing in the same direction. Global interest rate differentials and trade policy uncertainties make it difficult for external funds to return en masse at this point. To put it plainly, while the story isn't entirely without hope, the current evidence leans towards 'wait and see'.

Next week will be closely watched.

• ETF Radar continues to monitor the market re-pricing of the Fed’s path due to weakening US employment. If no new inflation or more hawkish tightening evidence emerges, this will continue to influence IWM, SPY, and QQQ. - Continue monitoring the ECB's subsequent statements and the implementation of rate hikes. This is relevant for assets like QQQ, TLT, TIP, and VNQ that are more sensitive to higher interest rates. - Keep an eye on the inflows/outflows of the spot Bitcoin ETF. If net redemptions continue, pressure will remain on funds such as FBTC, ARKB, BITO, and BLOK; if liquidity improves, direction may be re-evaluated.

Conclusion

Summarizing this week, the main points are threefold: weaker US employment has given some rate-sensitive sectors a breather; the ECB remains tight, keeping tech and bonds under pressure; and crypto and Chinese assets continue to wait for genuine capital inflows. Again, please note that the above is the directional prediction of our system quant model for general markets and does not constitute personalized investment advice; consult a licensed investment advisor before investing.