Recent trading sessions have been marked by repeated fluctuations, with the market frequently shifting between styles and sector rotation accelerating. The technology growth sector showed signs of a gradual rebound last week, particularly with a strong rally on Monday, but subsequently pulled back again. This reflects the lingering lack of confidence among many investors following July's sharp decline, especially the significant drop in tech stocks, making any recovery uneven and tentative.
The previously strong dividend-paying sectors such as banks have also experienced recent volatility and profit-taking. This indicates that the market style remains unstable, with considerable divergence between bulls and bears, resulting in repeated oscillations. Investor confidence needs to be gradually restored before a fresh rally can unfold. It's important to reassure that we are still in the aftershocks of July's downturn, not at the start of another significant decline.
Many investors exhibit euphoria and firm conviction when markets rise, but that's precisely when one should resist greed, avoid chasing highs, and consider taking profits timely on technology sectors that have already appreciated substantially. During the buoyant market sentiment in May and June, I repeatedly warned of risks and suggested a three-step strategy to mitigate potential sharp drops from the crowded tech track: resolutely deleveraging, appropriately reducing positions, and maintaining a balanced portfolio with one part technology and one part dividend stocks. This strategy proved quite effective.
Following this round of major adjustments, many investors have lost confidence again, with some prominent financial commentators even shouting that the bear market has arrived. I believe this swings to the other extreme—excessive panic. The fundamental logic supporting this market cycle remains unchanged. Senior leadership meetings have emphasized boosting capital market performance and investor confidence. A sustained rally is an effective way to generate wealth effects, which can, to some extent, offset the shrinking household balance sheets caused by property price adjustments, thereby stimulating consumption and investor sentiment.
Therefore, this market cycle is highly necessary and will receive policy support. China is currently in an era of low interest rates. The listed deposit rate for one-year lump-sum deposits has fallen to 0.95%, and many bank wealth management products yield around 2%. This means investors have few options for high-yield, low-risk assets, with a clear asset shortage. Previously, the major shift in household savings was primarily towards the property market, but now that the real estate sector is in an adjustment phase, the incentive for funds to flow there has diminished.
Although recent policies like the August 28 property market measures—extending the maximum personal housing loan term from 30 to 40 years and promoting presale homes to deliver what is seen—are aimed at stabilizing the property market, they are unlikely to trigger another broad surge. The future property market may see significant divergence: prime properties in core areas may retain some value due to scarcity and rigid demand, while properties lacking genuine demand may continue to face price and volume pressure.
For residents, investment directions are increasingly shifting towards the bond and stock markets, and the trend of household savings transfer will not change, which underpins the basis for the market to continue its rally. On the overseas front, the Federal Reserve's September meeting is imminent. Recent US August non-farm payroll data showed an increase of 162,000 jobs, significantly higher than the market expectation of 56,000, making markets more sensitive to the Fed's policy direction.
Trump believes stronger employment data is positive, indicating robust economic growth and good employment; however, markets worry the Fed might raise rates to control inflation, potentially causing stock market volatility. Trump has consistently advocated for rate cuts to support the economy and US stocks. The Fed's monetary policy is independent and should not be influenced by the President. Despite repeated pressure from Trump on Powell to cut rates quickly, Powell has adhered to the Fed's policy objectives. The Fed's goals include achieving maximum employment and maintaining price stability, with the 2% inflation target remaining a key anchor for market observers.
Following the Jackson Hole symposium, there are differing interpretations of the policy stance, but the Fed still faces a difficult trade-off between inflation and employment. Based on current conditions, the probability of the Fed holding rates steady in September is relatively high, which would have a smaller short-term impact on global markets, including A-shares and Hong Kong stocks.
On the domestic policy front, support for the financial system and real economy will continue to strengthen. Recently, eight central financial enterprises announced capital increase plans totaling 360 billion yuan, with the Ministry of Finance directly contributing 300 billion yuan, which will help enhance the capital strength of banks, insurers, and other institutions, reflecting strong support for the financial system. Liquidity is expected to remain in a low-rate, accommodative environment to counter pressures from weakening economic data.
However, changing the trajectory of traditional industries remains challenging. The economy is exhibiting clear K-shaped divergence: the technology and innovation sector is performing strongly, particularly those benefiting from the artificial intelligence revolution, with sustained inflows of new capital; several tech giants have also attracted significant funding upon listing. Meanwhile, many traditional industries face overcapacity and operational difficulties, requiring greater policy support for issues like employment. This K-shaped divergence in the real economy is the fundamental reason for the structural differences in market performance, and significant change is unlikely in the near term.
After completing its phase-based deleveraging in July, AI hardware valuations have retreated considerably from their highs and are poised for a fresh rebound, although a period of adequate consolidation is needed. The core driver for the next tech rally remains fundamentals, including tech leaders securing more orders, ultimately translating into revenue, profits, and earnings growth that push share prices higher. Tech stocks driven purely by themes and concepts may struggle to perform well going forward.
Moving ahead, focus should be on genuine tech leaders with confirmed orders and earnings. As long as the Nasdaq index does not experience a crash-like decline, there's no need to excessively worry about the foundation of the tech bull market. The world's smartest money is allocating to Nasdaq-related assets, so monitoring tech stock performance closely is advisable. If the Nasdaq remains strong and trades at high levels, there's little to worry about; should it experience a sudden sharp drop, timely position reduction or even full exit for safety would be prudent.
From an earnings growth perspective, AI-driven hardware companies still have substantial profit expansion potential, including chips, computing power, optical communications, liquid cooling, and PCBs. Investors can closely follow announcements from leading tech companies to gauge order momentum and refer to research reports from securities analysts tracking key companies and sectors. The next phase of the tech rally will be driven by fundamentals rather than concept speculation.
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