To The Moon

Performance of Global Equity Indices(in US Dollar)

• Last week, global equity markets showed overall weakness, yet market sentiment was polarized. In Greater China, the tech sector experienced a slight pullback, but the consumer sector took the lead, driving notable gains in the Shanghai Composite Index and the CSI 300. In the U.S., the stock market temporarily stabilized, ending its streak of consecutive declines. Although the Nasdaq surged on Friday, it still closed the week down by more than 2%.

• Key Events to Watch This Week:

  Macro Focus → The FOMC meeting will be the primary event.

  Sector Focus → The NVIDIA GTC Conference for AI industry updates.

  Stock Focus → A wave of Chinese company earnings, with special attention to Tencent, Xiaomi, and their AI outlooks.

Key Market Themes

Improving Inflation Data, Weakening Consumer Confidence—Is the U.S. Market Rebounding or Just a Bear Market Rally?

• Last week, U.S. February inflation data came in below market expectations, offering some temporary relief to the tense market. CPI and core CPI rose 0.22% and 0.23% month-over-month, both slightly below the 0.3% consensus forecast. More notably, PPI and core PPI even recorded rare month-over-month declines.

• However, Nick Timiraos, the Fed's go-to media source, along with major investment banks, quickly raised their February PCE forecasts. Wall Street now expects a higher month-over-month PCE inflation rate than the previous month, with projections still trending upward. Meanwhile, the stock market experienced a rollercoaster ride, surging initially before reversing lower.

• Although on the surface, CPI data appeared decent, a closer look reveals that the largest declines came from the transportation sector, particularly airline fares. However, these prices tend to be highly volatile, lack stickiness, and do not directly feed into PCE calculations. Additionally, the drop in PPI was largely driven by weaker energy prices, while other PCE-relevant components showed little improvement.

• Moreover, February's inflation data did not yet reflect any impact from Trump’s tariff policies, which remain one of the market’s biggest concerns. As a result, despite seemingly softer inflation numbers, the yield curve moved higher, and the market’s rate cut expectations remain unchanged at 2-3 cuts, showing little adjustment from before. We believe that this CPI/PPI release has done little to change the overall market narrative—it merely helped temporarily stabilize market sentiment.

• At the same time, the University of Michigan’s consumer sentiment report on Friday further confirmed weakening U.S. consumption. The March consumer sentiment index plunged to 57.9, marking the lowest level since November 2022, far below both prior readings and market expectations. More concerningly, inflation expectations for both the short and long term continued to rise, with the 5-year inflation expectation approaching 4%, hitting a near-decade high and far exceeding the Fed’s long-term inflation target.

• Another noteworthy trend is the turning point in the U.S. retail sector. Retail giants Walmart and Costco have both seen their stock prices drop over 10% in March alone. Costco's latest earnings missed profit expectations, while Walmart, despite decent results, significantly lowered its 2025 guidance, forecasting only 3%-4% full-year net sales growth, a notable slowdown from 2024. Meanwhile, executives from various retail giants have voiced concerns over tariffs.

• As we discussed in previous weekly reports, Trump’s core objective remains debt reduction ("deleveraging"). As long as it doesn’t severely impact the economy or his approval ratings, he can afford to ignore stock market fluctuations. Currently, the three major headwinds weighing on U.S. stocks—tariffs, inflation, and political uncertainty—remain unresolved, with no signs of easing. If these risks persist, they will eventually impact corporate earnings expectations, which could prove fatal for the market.

• In the short term, this week’s focus will be on the Fed’s FOMC meeting and NVIDIA’s GTC Conference. Investors will be watching whether Powell signals an early slowdown or halt to balance sheet reduction, and whether NVIDIA’s CEO, Jensen Huang, can bring new surprises. However, in the longer run, we urge caution—do not underestimate the market’s fragility and sensitivity. At this stage, a single negative catalyst could easily shatter confidence. As such, we maintain an underweight and cautious stance on U.S. equities.