To The Moon

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The U.S. stock market finished this week with a significantly stronger upward move than previously anticipated, recording a sharp rally within a very short period of time.

Our previous outlook expected a strong upward move early in the week, followed by a gradual supply-and-demand stabilization process that would allow the market to maintain a more moderate upward trend through the latter part of the week.

However, the magnitude of this week's rally was considerably greater than expected.

In fact, the market reached the upper end of the projected upside range for the recovery expected to continue through mid-to-late August within this week alone and managed to maintain those gains through the close.

This represents an unusually strong and rapid change in market momentum.

The background to this move is important.

In July, the market failed to complete the expected transition into an upward trend and instead reversed sharply into a corrective phase. The market subsequently entered the Bearish Zone, transitioning into a downside trend and experiencing further declines.

Since last week, however, the external factors that had been pressuring the market have gradually begun to ease. This initially triggered value-oriented buying, and during this week, increasing confidence that these risks were being resolved resulted in a much stronger inflow of buying pressure.

There were two primary catalysts behind this week's unusually strong rally.

1. Expectations surrounding the reopening of the Strait of Hormuz

Reports that an agreement to reopen the Strait of Hormuz was approaching completion triggered a sharp decline in oil prices, easing concerns about inflation and reducing pressure on the broader market.

However, it is important to note that no final agreement has actually been concluded yet. Officials continue to report that negotiations are progressing positively, but the market is still waiting for a tangible and confirmed outcome.

As a result, the market has continued to undergo a supply-and-demand stabilization process in response to each new development surrounding the negotiations.

2. A significantly weaker-than-expected U.S. employment report

Friday's employment data provided another major catalyst for the rally.

The weaker-than-expected labor market data significantly reduced expectations for further Fed tightening, while increasing expectations for either a rate hold or potential rate cuts.

This shift in interest-rate expectations rapidly strengthened investor sentiment toward risk assets, particularly growth and technology stocks, as investors began to anticipate a more favorable monetary-policy environment.

The combination of these two factors created a powerful shift in market sentiment and resulted in the unusually strong rally seen this week.

However, the market has already reached the upper end of the upside target that we previously expected to develop through mid-to-late August.

For this reason, while we continue to expect the weekly upward trend to remain intact, the market is now likely to enter the Bullish Zone next week and transition from the current rebound trend into a more clearly defined upward trend.

Nevertheless, the remaining upside potential appears increasingly limited.

Given the speed and magnitude of this week's advance, even if another strong upward move occurs, it is likely to be temporary. The market is now increasingly vulnerable to profit-taking pressure as investors seek to realize gains following the rapid recovery.

Overall, we expect the positive market environment to continue into next week, with the possibility of additional upside momentum.

However, beginning around mid-August, upward momentum is likely to gradually weaken. We currently expect the market to enter a more limited range of consolidation and downside fluctuations, potentially continuing for approximately two to three weeks through late August and early September.

This represents an important change from our previous outlook.

Previously, we expected this period to potentially develop into a much stronger downside move, including a transition into the Bearish Zone. However, the magnitude of this week's rally has significantly weakened that downside scenario.

The more important question now is what happens after early September.

Based on the current market structure, if the market undergoes the expected period of consolidation and cooling through early September without a significant deterioration in the underlying trend, the probability of another strong upward expansion beginning around early September has increased considerably.

Interestingly, this period coincides with the September 15–16 FOMC meeting, making the relationship between the upcoming monetary-policy decision and market positioning particularly important.

The combination of this week's much weaker employment data and the sharp decline in oil prices has materially improved the probability of a stronger upward trend developing in September.

However, it is still too early to establish this as the definitive scenario.

We will continue to monitor the market through August, particularly the stability of the current buying pressure, developments surrounding the Strait of Hormuz negotiations, oil prices, and the market's response to the changing interest-rate outlook.

We expect to provide a more definitive update toward the end of August, when the market structure and the direction of the September trend become significantly clearer.

For now, the key point is that the market's short-term outlook has improved substantially, but the rapid rally has also significantly reduced the remaining upside potential in the current recovery phase.

Accordingly, while maintaining exposure to the current upward momentum may remain reasonable, investors should also be prepared for increased profit-taking and consolidation as the market approaches the upper end of its projected range.