Is it possible to follow the bearish momentum in US stocks on the bullish bull run?

Views 18712024.06.14

US Equities $S&P 500 Index(.SPX.US)$ $Nasdaq Composite Index(.IXIC.US)$Recently, AI-related topics and blocks have been raging hotter and hotter around AI. $NVIDIA(NVDA.US)$ $Taiwan Semiconductor(TSM.US)$ $ASML Holding(ASML.US)$$Apple(AAPL.US)$ $Microsoft(MSFT.US)$ $Alphabet-C(GOOG.US)$, both hit all-time highs, and the topic of generative AI continues to be the focus of the market. THE STRONG DEMAND FOR SEMICONDUCTORS AND DATA CENTERS DRIVEN BY GENERATIVE AI IS THE CORE ELEMENT DRIVING THE ABOVE STOCK RISE. How should bulls deal with US stocks at the moment? Is it a bubble risk? Whether or not to go to Takao has been a common question in recent times, and today we will discuss these issues with everyone in depth and in the open.

The path of decline begins to be clear and normalized

One of the reasons for the recent rise in US stocks is the normalization of interest rates, not a simple decrease in interest rates. From the economic data point of view, US economic activity has been slowing for the past three months, and the strong performance of non-farm data at the beginning of the month also reflects a significant opportunity for the economy to be in a soft landing phase (important authors of soft landing have said many times in the past year.Refer to last year's articles), which leads to the possibility of normalizing interest rates and is the main factor supporting the rise of the stock market.

(Source: CME)
(Source: CME)

(Source: CME)

As you can see from the CME fedwatch, the latest interest rate futures show that the market expects a higher probability of a rate cut in September. If it does not decrease in September, it will certainly decrease in November. The probability of a rate cut in November to 5.00~5.25 p or below is currently 100%. This is because the market has judged from economic data that the environment in the United States has begun to change and interest rates need to change.

(Source: Official website of the Federal Reserve)
(Source: Official website of the Federal Reserve)

(Source: Official website of the Federal Reserve)

In addition, at last night's Fed meeting, while Fed Chairman Powell continued to maintain his hawkish rhetoric (almost as expected by the market), he also mentioned his views early in yesterday's talk as a non-market focus.For more details, please review), but the most interesting is the display of bitmaps. As shown in the latest bitmap above, the number of rate cuts this year has been reduced from 3 times in March to 1, but the expectation of a 1 percent annual rate cut for next and subsequent years is unchanged, which is the path to rate formalization.

Normalization of interest rates favors the long-term development of economic activity as a whole, without the risk of a gradual decline in interest rates and increases in the return and valuation of risk assets, which is one of the reasons why US stocks have risen recently.

Optimistic Expectations for Generative AI

ONE OF THE RECENT MARKET HIGHLIGHTS HAS OF COURSE BEEN APPLE TAKING BACK THE MARKET CAPITALIZATION, AND THE COOPERATION AND DEVELOPMENT OF THE COMPANY AND OPENAI STIMULATED THE SHARE PRICE SURGE. AAPL's Cycle Options Have More Exaggerated Performance This Week。 Even if the market lacked surprises for Apple at the level of AI development and technology, it was not surprising. On the contrary, the company's emphasis on personal privacy protection makes the market feel that this strategy has a positive message. First, it does not require excessive capital expenditure on AI development, and the second strategy can bring more optimistic expectations for Apple phones. After AI PCs, today's market is starting to imagine AI phones. Even some Apple concept stocks in Hong Kong stocks like $AAC TECH(02018.HK)$and also get excited with some related AI concepts.

According to the author, this is mainly the market's expectations and expectations for generative AI. It is well known that current AI computing is still in the Training phase and has not reached the inference stage. Simply put, these AIs seem like immature children, so the market gives these AIs a high fault tolerance and room for imagination (for example, GOOG's AI was an example of glue making cakes earlier, and the market is also a joke., without causing any impact on the share price). Therefore, the current generative AI has a large space for any related development and imagination, making it easy for valuations to rise upwards.

(SOURCE: BUSINESS INSIDER)
(SOURCE: BUSINESS INSIDER)

(SOURCE: BUSINESS INSIDER)

Because these generative AIs are leading and cutting edge technologies in today's technology industry, they require a lot of computing power and data centers, leading some up-and-coming semiconductor companies to crack the roof. In valuation terms, including pointers and valuations of some tech stocks are starting to approach two standard deviations, bubble risk is indeed worrying. It should be noted, however, that the bubble in the technology sector in general is likely to be higher than the two standard deviations of the traditional stock market, which was also mentioned in yesterday's talk. Therefore, in the short term, it is not advisable to estimate for the time being, even if you know the risks involved. On the contrary, it will be more advantageous to buy reserve profits in the face of reversals at the moment; of course, matching or using options as a hedge may be a better option.

Deployment Comments

Although the rise of US stocks has recently begun to become more comprehensive, in addition to the aforementioned major technology companies, many stocks or sectors have lagged behind. But the author believes that when investing (or speculating) on this technology track, the technology level is difficult to catch up with, and leading companies will have more capital to invest in R&D, giving leading technologies a more monopolistic advantage. So, NVDA, TSM, ASML, MSFT, AAPL, GOOG or whatever stocks we're going to prioritize.

However, if investors choose to go after the real bull market in US stocks, they can also consider using technical movement analysis to judge, such as when a stock price breaks through before the rally. For example, today's $Tesla(TSLA.US)$After the shareholder meeting, the stock price rises, the technical movement breaks through the triangle pattern under the chart, and the MACD also has the opportunity to send a gold cross signal. This type of movement tracking can be referenced.

Chief Analyst of Futu Securities Liang

(The author is a license holder of the Securities Regulatory Commission, and its contacts do not have financial interests in the issuer of the proposed shares mentioned above)

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