The Federal Reserve maintained its benchmark interest rate unchanged at its June policy meeting, holding steady. The conflict in the Middle East has heightened market expectations for rate hikes, which has also significantly impacted the trajectory of the U.S. stock market.
The Fed currently finds itself in a difficult position, caught between a rock and a hard place. Newly appointed Fed Chair Wash is hesitant to raise rates hastily, fearing that such a move could burst the tech bubble in U.S. stocks. With over 50% of American household assets allocated to stocks and funds, a sharp market decline could severely affect Trump's midterm election prospects. On the other hand, he is also reluctant to cut rates abruptly, as U.S. inflation remains relatively high. A rate cut at this juncture could reignite inflation expectations, directly worsening the living conditions of American residents.
During a visit to the U.S. for the Berkshire Hathaway annual meeting this year, it was evident that prices are significantly higher than a few years ago. Dining at a Chinese restaurant in the U.S., the menu prices are roughly similar in numerical terms to those in China, but the key difference is the currency—they are in U.S. dollars, while ours are in Renminbi. This means that the Fed's continuous monetary easing over the past year has directly led to a K-shaped divergence in American household wealth. Wealthy individuals with stocks, funds, and real estate have seen their fortunes soar alongside rising asset prices. Meanwhile, ordinary residents face high inflation and increasingly difficult living conditions. This serves as a stark warning: without quality assets, one may not only miss out on asset price appreciation driven by liquidity during periods of central bank easing but could also suffer from asset depreciation.
The U.S. Supreme Court has ruled that Trump's global tariffs are illegal, with over $175 billion in tariffs facing potential refunds. This indicates that Trump's use of tariffs as a major tool has become less effective. Consequently, the impact of trade factors on the market this year is likely to be smaller than last year.
A major market influence in the first half of the year has been the U.S.-Iran conflict. On February 28th, the U.S. and Israel launched military actions against Iran. Trump severely underestimated Iran's resolve, assuming that regime change could be achieved in the short term without large-scale ground troops, relying primarily on airstrikes. In reality, four months later, the conflict persists. The Strait of Hormuz remains closed to navigation, directly contributing to rising global commodity prices, with U.S. oil prices surging by 40%. Recently, Trump announced an agreement with Iran, but headlines across major U.S. media outlets declared "America Lost," as the terms appear less favorable than the pre-war agreement. This costly and extensive operation has yielded few benefits for the U.S., while significantly damaging its military bases in the Middle East. Israel's supposedly most advanced missile defense system has been nearly depleted by Iranian drones and missiles.
In the second half of the year, the U.S.-Iran conflict may conclude, potentially reopening the Strait of Hormuz. This would reduce pressure on international oil prices, and global inflation could moderate. It is hoped that both sides can reach an agreement swiftly to end the war.
Recent interest rate hikes by the European Central Bank and the Bank of Japan have directly triggered a sharp decline in precious metal prices. The international gold price briefly fell to $3,800 per ounce. The Hong Kong stock market also experienced a periodic pullback. In the first half, Hong Kong stocks underperformed compared to A-shares, particularly the Hang Seng Tech Index, as many constituent companies rely more on consumer spending rather than technology-driven profits. The recent first-ever negative growth in total retail sales of consumer goods has dealt a significant blow to consumer-related sectors and Hang Seng Tech Index constituents, contributing to their weak performance. In the second half, if consumer spending growth recovers and price indices show improvement, Hong Kong stocks could see a rebound.
Turning to domestic economic and policy developments, China's economy is currently undergoing a transformation, transitioning from high-speed to medium-to-low-speed GDP growth. Different sectors are experiencing a starkly divergent landscape. Traditional industries are struggling, while emerging industries—particularly technology and innovation sectors prioritized under the 15th Five-Year Plan—are receiving substantial capital support and performing strongly in the capital markets. However, traditional sectors, especially real estate and consumer-related industries, face significant challenges, reflecting the economy's current state under the叠加 of multiple pressures. Therefore, the key to breaking the impasse lies in addressing "bottleneck" technological issues through innovation, cultivating new productive forces, and finding a second growth curve for the economy. Current frontier areas for focus include artificial intelligence, quantum information, life sciences, deep-space exploration, and deep-sea technology. Simultaneously, traditional industries must undergo optimization to enhance product value-added, develop high-end and smart manufacturing, and shift from traditional to advanced industries, thereby strengthening emerging sectors. This would inject new vitality into the economy driven by technological innovation. In essence, the extreme market divergence is closely linked to the economic divergence. As the stock market is often considered a barometer of the economy, its performance has deep-rooted fundamental economic causes. A clear understanding of the current economic fundamentals is essential for effective investment positioning.
The 15th Five-Year Plan was reviewed and approved during this year's Two Sessions. Formulating investment strategies based on the key directions outlined in this plan represents a sound approach. In investing, it is crucial to adhere to value investment principles, adapting them to the Chinese context.
Looking ahead to the overall market in 2026, since the policy shift on September 24, 2024, China has introduced a series of significant pro-growth measures. The Shanghai Composite Index once broke through the 4,200-point level, and the ChiNext Index reached a record high. The supportive stance towards the capital market remains unchanged, with high-level meetings repeatedly emphasizing the need to boost investor confidence and attract medium- to long-term funds into the market. The trend of household savings shifting towards the capital market is becoming increasingly evident, providing a continuous inflow of incremental funds.
Although the current market shows divergence, its赚钱效应 remains stronger compared to previous years. The challenge now lies in whether one's portfolio is aligned with the right sectors. Without correct sector alignment, efforts are in vain, a situation intrinsically linked to the current economic divergence. From a valuation perspective, the price-to-earnings ratio of the CSI 300 remains below 15 times, still lower than its historical average and far from a market-wide bubble. However, risks of局部泡沫 exist, necessitating rational thinking and a steadfast commitment to value investing.
An encouraging signal is the recent stirring of brokerage stocks, often referred to as the "bull market bellwether." After a prolonged period of weakness, brokerage stocks have shown improved market performance recently, with some posting significant gains. In fact, this year's profitability for the brokerage industry is historically the second-best, following 2015. However, due to severe market divergence and waning investor confidence in a bull market, brokerage stocks had underperformed and failed to keep pace with the broader market. Their recent strength is an important indicator of the health and sustainability of this market cycle. As noted earlier, sector rotation is beneficial, leading to a healthier and more enduring market rally. A scenario where only one sector rises while others fall is not sustainable.
Within the technology innovation sphere, opportunities in the "six major tracks" warrant attention. In recent years, international capital's confidence in China's technological innovation has significantly increased. Foreign holdings of Chinese stocks have now exceeded 4 trillion yuan. Major breakthroughs in areas like chips, semiconductors, large model applications, and robotics have attracted a steady influx of international capital into tech innovation, garnering attention in both primary and secondary markets. This suggests that the current technology rally is likely to persist.
This market cycle肩负着三重历史使命. First, to increase household wealth and thereby boost consumption. Second, to help stabilize the property market. Third, to support more technology innovation companies in listing on the capital markets, thereby motivating PE and VC firms to invest more in tech innovation enterprises. Therefore, this market cycle plays a crucial role in supporting current economic development.
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