To The Moon

Over the past week, the A-share market has broadly maintained a pattern of choppy consolidation, with major broad-based indices all pulling back and a wait-and-see mood dominating sentiment.

During the National Day holiday, major global markets showed divergent performance: the U.S. technology sector led gains, with the Nasdaq and the Philadelphia Semiconductor Index both rising and hitting new stage highs; Hong Kong stocks edged lower amid factors including liquidity conditions; U.S. Treasury yields held near two-decade highs, and the dollar index remained resilient.

Overall, no major risk events exceeding expectations occurred during the long holiday, and the market's core focus is on the pace of A-share trading after the holiday, as well as how domestic and external fundamentals and policy factors will steer the market's direction.

Overseas: Rate-hike expectations cool, but medium-term constraints remain

In the near term, overseas markets have shown signs of marginal improvement. U.S. September nonfarm payrolls came in significantly below market expectations, the unemployment rate edged up, and wage growth continued to moderate, further confirming signals of a cooling labor market.

After the data release, market expectations for a Federal Reserve rate hike in October cooled markedly, risk appetite received a temporary boost, and this was one of the important drivers behind the strength in the U.S. technology sector.

However, medium-term uncertainty constraints have not been lifted: the cooling of rate-hike expectations did not bring U.S. Treasury yields down in tandem, with the 10-year Treasury yield still holding near two-decade highs, while the dollar index remains strong, continuing to weigh on valuations of global equity assets.

Domestic: Policies rolled out in clusters, fundamentals show weak recovery

Both domestic policy and fundamentals are showing a steady, incremental improvement, providing bottom support for the market. On the policy front, multiple growth-stabilization measures were rolled out in clusters in October: the interest subsidy policy for first-home mortgages was officially implemented, offering marginal support to housing demand; the central bank lowered the PSL rate and expanded its scope of support, adding relending quotas for technological innovation and for agriculture and small businesses, as structural monetary policy tools continued to exert force; the full 250 billion yuan of special treasury bond funds for consumer goods trade-ins for the year has been fully allocated, and the pace of special bond issuance has accelerated, with support for infrastructure investment expected to strengthen.

On the fundamentals front, travel and consumption during the double holiday period remained stable, with demand for long-haul and in-depth travel rising somewhat; the September manufacturing PMI rebounded into expansion territory, and the cumulative growth rate of industrial enterprise profits from January to August remained at a high level, showing signs of recovery on the production side.

However, property sales remain weak, and the slope of domestic demand recovery is still to be observed, with the economy overall showing a pattern of weak recovery. On the liquidity front, domestic macro liquidity maintains an accommodative tone, and after the holiday, as trading resumes, funding conditions are expected to remain stable.

Short-term repair is possible, but structural divergence remains the main theme

From historical statistics, since 2010, market performance after the National Day holiday in most years has run opposite to the pre-holiday period. With the market broadly declining in the week before the holiday and no major negative shocks during the long break, there is short-term repair momentum, and a positive opening is likely.

But in the medium term, the market will most likely still maintain a structurally divergent pattern, and conditions for a full-blown trend rally are not yet in place. As the third-quarter earnings disclosure period approaches, earnings verification will become the market's main theme, and capital will gradually shift from oversold rebound plays to screening based on earnings fundamentals, with directions offering higher prosperity and earnings certainty more likely to attract capital attention.

In terms of allocation, three directions can be focused on: first, technology growth, where the AI industry trend is still deepening, and the strong performance of overseas technology sectors brings sentiment spillover, with sectors such as semiconductors, computing power hardware, AI pharmaceuticals, and innovative drugs enjoying industrial support for their prosperity; second, cyclical sectors, where varieties such as nonferrous metals and coal benefit from downstream demand and energy supply guarantee policies, with certain resilience on the earnings side; third, domestic-demand-related directions, where consumer, building materials, and some low-position financial sectors are expected to benefit from marginal fundamental improvement brought by the continued implementation of growth-stabilization policies.

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