As we approach a key decision point, it is important to recognize that the market's recent extreme rotation was driven by an uncertain macro environment—geopolitical tensions, US Treasuries, and monetary policy—combined with an industry narrative vacuum, which led to shrinking risk appetite and chaotic expectations. We previously indicated that this state of extreme rotation would likely be resolved through the convergence of macro uncertainties and the emergence of new industry narratives.
This week, although the market remained broadly range-bound amid a series of geopolitical and inflationary macro shocks, structural changes are brewing beneath the surface. In both US and Asian markets, the technology mainline has once again become the market's focal point. On one hand, after significant prior corrections, the market is now using earnings certainty to counter macro uncertainty. On the other hand, as various macro disturbances land and uncertainty declines, this helps bridge market disagreements and boost risk appetite, allowing previously suppressed tech assets to exhibit a "bad news out of the way" pattern.
Looking ahead, as a series of macro uncertainties gradually resolve and dissipate in the near term, we believe investors can adopt a more proactive stance in positioning. On the geopolitical front, with conflict intensity peaking and receding this week, the most violent phase of oil price surges is passing, and we expect a phased downward channel to emerge. The political and financial pressures from current oil prices are already substantial. We have three judgments on the geopolitical situation: first, the US may not escalate further and could instead release easing signals, which might lower oil prices even if Iran does not accept and the strait does not immediately reopen; second, the US may use the upcoming Gulf states-Iran strait meeting to acknowledge strait tolls and find a de-escalation step; third, after these steps, the US and Iran may reach a new agreement.
On monetary policy, with key variables such as inflation landing this week, market expectations for the Federal Reserve's September decision are becoming clearer. Although US PPI and CPI both exceeded expectations, triggering higher odds of a September rate hike, asset price reactions were not severe. The 2-year Treasury yield rose 7 basis points, while the 10-year was roughly flat and the 30-year actually declined 2 basis points. US equities rallied, with all three major indices gaining nearly 1%, and the Philadelphia Semiconductor Index rising nearly 2%. This reflects that after repeated pricing of rate hike expectations, risk landing and uncertainty reduction has created a "bad news out of the way" effect. Furthermore, the market does not necessarily oppose a September hike, as it helps the Fed maintain credibility and stabilize long-end yields. Additionally, August inflation included volatile one-off factors like communications and hotels; after excluding these, core CPI rose approximately 0.2% month-over-month, confirming the disinflation trend remains intact.
Beyond macro uncertainty resolution, September through November serves as a dense window for overseas AI industry catalysts in the second half of the year, which should provide resonance catalysts for domestic tech investment. Several important milestones stand out. First, with the upcoming Anthropic listing, robust ARR data is on the horizon. Second, as we approach the new earnings season, which begins in mid-October, this cycle will provide clearer guidance for next year's industry expectations compared to the July-August interim reports. Third, September through November marks the traditional window for major North American tech companies to hold annual conferences, showcasing their latest achievements and progress in AI applications and new scenarios. These catalysts should help unify market consensus and elevate the weight of industry and earnings fundamentals.
During the previous extreme rotation, the market adopted three strategies to cope: shifting to "micro-cap plus dividend" barbell allocations, seeking catch-up gains in previously low-positioned sectors, and rapidly switching between hot themes and concepts. These approaches collectively led to the failure of momentum investing. However, with the release of macro uncertainties, the pursuit of earnings certainty is gradually returning. As the environment dominated by macro uncertainty concludes and fundamental pricing weight increases, the market environment will favor the return of momentum investing. The typical sub-sectors with upward earnings revisions since the July earnings season remain concentrated in AI computing hardware, AI equipment, AI upstream materials, and manufacturing and export chains—broad high-end manufacturing directions. Once momentum investing returns, these areas will continue to be the beneficiaries with greater elasticity.
Risk reminders include economic data volatility, policy easing falling short of expectations, Fed rate cuts underperforming expectations, and geopolitical escalation.