Market Overview

Since the third quarter, well-performing assets include the Russell 2000 Index, gold prices, financial stocks, and U.S. Treasury bonds, while poorly performing assets include Ethereum, crude oil, and the U.S. dollar. Bitcoin and the Nasdaq 100 Index have remained almost flat.

For the US stock market, the current market is still in a bull market, with the main trend remaining upward. However, the trading environment in the last few months of the year will lack performance themes, and both the upward and downward potential of the market will be limited. The market is continuously revising down its earnings expectations for the third quarter.

Recently, the valuation has pulled back, but the rebound is also very quick, and the price-to-earnings ratio of 21 times is still far above the 5-year average.

93% of the companies in the S&P 500 Index have reported actual performance, with 79% of the companies exceeding earnings per share expectations and 60% exceeding revenue expectations. The stock price performance of companies that exceeded expectations is basically in line with the historical average, but the stock price performance of companies that fell short of expectations is worse than the historical average.

Currently, the strongest technical support in the U.S. stock market is corporate buybacks. In the past few weeks, corporate buyback activity has reached twice the normal level, averaging about $5 billion per day, annualized to $1 trillion. This buying power may gradually wane after mid-September.

Large technology stocks have weakened in performance during the mid-summer, mainly due to lowered earnings expectations and a decline in market enthusiasm for AI themes. However, the long-term growth potential of these stocks still exists, and prices cannot easily drop.

From last October to this June, we have experienced some of the best risk-adjusted returns of this generation, with the Sharpe ratio of the Nasdaq 100 index reaching 4(. To date, the stock market's price-to-earnings multiples are higher, economic and financial growth expectations are slower, and market expectations for the Federal Reserve are also higher. Therefore, it is relatively difficult to expect the stock market to perform as it did in the previous three quarters. We see signs that large capital is gradually switching to defensive themes ), for example, both subjective and passive strategies have increased holdings in the healthcare sector, which offers defensive characteristics and growth unrelated to AI (. It is expected that this trend will not reverse quickly, so it would be prudent to maintain a moderately neutral attitude towards the stock market in the coming months.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing Down, but Neutral to Optimistic Outlook for the Market for the Rest of the Year])https://img-cdn.gateio.im/webp-social/moments-c675476dd97413f93db474e8d4769094.webp(

At the Jackson Hole meeting on Friday, Federal Reserve Chairman Powell made the clearest statement on interest rate cuts so far, indicating that a rate cut in September is a foregone conclusion. He also stated that he does not want to further cool the labor market and has increased confidence in the path of inflation returning to 2%. However, he still insists that the pace of policy easing will depend on future data performance.

Powell's statement this time did not exceed expectations for dovishness, so it did not create much of a stir in traditional financial markets. What everyone is most concerned about is whether there is an opportunity for a single 50 basis point rate cut within the year, and Powell did not hint at that at all. Therefore, the expectations for rate cuts this year have hardly changed from before.

If future economic data improves, the current expectation of a 100 basis point interest rate cut may even be adjusted downwards.

The reaction in the crypto market has been very strong, which may be due to the excessive accumulation by short sellers causing a squeeze ). For example, the recent surge in open interest has been rapid, but the contracts often show negative funding rates (. Additionally, the understanding of macro news among crypto market participants is not as synchronized as in traditional markets, leading to greater damping in message transmission. Many people might not even know that Powell is going to speak at the Jackson Hole conference this week. However, whether the current market environment supports the crypto market in breaking new highs remains a question. Generally speaking, for a new high to be achieved, besides a loose macro environment, there must be a willingness to take risks, and native crypto themes are also essential. Themes like NFT, DeFi, the opening of spot ETFs, and meme frenzy all count. Currently, the only strong momentum theme seems to be the growth of the Telegram ecosystem. Whether it has the potential to become the next theme will depend on the performance of the latest token projects and how many new users they bring in.

The surge in the cryptocurrency market is also related to the significant downward revision of last year's non-farm employment numbers in the U.S. this week. However, this revision is excessive, as it overlooks the contribution of illegal immigrants to employment, and these individuals were included in the employment count initially. Therefore, this correction has little significance. As a result, the traditional market reacted mildly, while the cryptocurrency market viewed this as a sign of substantial interest rate cuts.

From the experience of the gold market, most of the time the price is positively correlated with the ETF holdings, but in the past two years, the market structure has changed, and most retail and even institutional investors have missed out on the rise in gold prices, while the main buying force has become the central banks.

Data shows that the inflow rate of Bitcoin ETFs significantly slowed down after April. In Bitcoin terms, it has only grown by 10% in the last five months, which aligns with its price peak in March. If the risk-free rate of return decreases, it may attract more investors into the gold and Bitcoin markets, which is very likely.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral to Optimistic on the Market for the Rest of the Year])https://img-cdn.gateio.im/webp-social/moments-c20d1fa2f14a9fd14073752e2cd3dc13.webp(

From the perspective of stock positions, earlier this summer, the subjective strategy funds performed quite well, timely reducing positions, and had an opportunity to attack in August. Data shows that the subjective strategy funds have been replenishing positions very quickly recently, and the positions have returned to the historical 91st percentile, while the systematic strategy funds have responded more slowly, currently only at the 51st percentile.

The stock market bears closed their positions during the decline.

In terms of politics, Trump's approval rating has stopped declining, and betting odds are rising. Over the weekend, Trump also received support from young Kennedy, and Trump's deal may heat up again, which is generally good news for the stock market or the crypto market.

Capital Flow

The Chinese stock market has been declining, but funds with Chinese concepts have been experiencing a net inflow. This week, the net inflow of 4.9 billion USD set a new high in five weeks, marking the 12th consecutive week of net inflow. Compared to other emerging market countries, China has also seen the largest inflow. Those who dare to choose to increase their positions against the trend in the current market downturn are either state-owned funds or long-term investors, betting that as long as the stock market does not shut down, it will eventually rise again.

However, structurally, from the perspective of clients of a certain trading platform, after February, there has basically been a continuous reduction in A-shares, and recently the main increase has been in H-shares and Chinese concept stocks.

Despite the global stock market recovery and capital inflows, the low-risk preference money market has also seen inflows for four consecutive weeks, with a total scale rising to 6.24 trillion USD, setting a new historical high, indicating that market liquidity remains very abundant.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral to Optimistic about the Market for the Rest of the Year])https://img-cdn.gateio.im/webp-social/moments-28c07cb7668a88dc8898c81dc7aecc43.webp(

Continuously focusing on the financial situation of the United States, which is basically hyped as a theme every year. According to predictions, the U.S. government's debt could reach 130% of GDP within ten years, and interest payments alone will reach 2.4% of GDP, while military spending to maintain U.S. global hegemony is only 3.5%, which is clearly unsustainable.

US Dollar Weakens

In the past month, the US Dollar Index )DXY( has fallen by 3.5%, the fastest decline since the end of 2022, which is related to the market's increased expectations for a Federal Reserve interest rate cut.

Looking back to early 2022, the Federal Reserve adopted an aggressive interest rate hike policy to combat inflation, which strengthened the dollar. However, by October 2022, the market began to anticipate that the Federal Reserve's interest rate hike cycle was nearing its end and might even start considering rate cuts. This expectation led to a decrease in demand for the dollar, pushing it weaker.

The current market seems to be a replay of the past, except that the speculation back then was too ahead of its time, and today the interest rate cut is about to land. If the dollar falls too much, the unwinding of long-term arbitrage trades may resurface, potentially becoming a force that suppresses the stock market.

Two Major Themes Next Week: Inflation and a Certain Chip Company

Key price data includes the PCE) Personal Consumption Expenditures( inflation rate in the United States, the preliminary CPI) Consumer Price Index( for August in Europe, and the CPI in Tokyo. Major economies will also release consumer confidence indices and economic activity indicators. In terms of corporate earnings reports, the focus will be on a certain chip company's earnings report after the U.S. stock market closes on Wednesday.

The PCE released on Friday is the last PCE price data before the Federal Reserve's next decision on September 18. Economists expect the core PCE inflation month-on-month growth to remain at +0.2%, with personal income and consumption growing by +0.2% and +0.3% respectively, unchanged from June. This means the market expects inflation to maintain a moderate growth momentum without further decline, leaving room for potential downward surprises.

Certain Chip Company Financial Report Preview - Clouds Disperse, Expected to Inject Strong Confidence into the Market

The company's performance is not only a barometer for AI and tech stocks, but also for the overall sentiment in the financial market. On this side, there are no temporary issues with demand; the key theme remains the impact of the delayed new architecture. After reading several institutional analysis reports, I found that the mainstream view on Wall Street believes this impact is minimal. Analysts generally maintain an optimistic expectation for this earnings report, and the company's actual results have exceeded market expectations in the past four quarters.

The core indicators of market expectations are:

• Revenue of $28.6 billion, up 110% year-on-year and up 10% quarter-on-quarter.
• Earnings per share of $0.63, year-on-year +133.3%, quarter-on-quarter +5%
• Data center revenue of $24.5 billion, up 137% year-on-year and up 8% quarter-on-quarter.
• Profit margin 75.5%, flat compared to Q1

The most concerning questions are:

1. Has the new architecture been postponed?

Analysis suggests that the company's first batch of new architecture chips will be delayed by approximately 4-6 weeks at most, expected to be pushed to the end of January 2025. Many customers have turned to procure other models that have a much shorter delivery time. A certain foundry has begun production of the new architecture chips, but due to the complex packaging technology used in the new models, there are yield challenges, and initial output is lower than the original plan.

However, this new product was not included in the recent performance forecast:

Due to the new architecture not expected to enter sales until the first quarter of 2025 at the earliest, with the earliest timeframe being 2024 Q4 ), and the company only providing guidance for single-quarter performance, the delay is not expected to have a significant impact on the performance for Q2 and Q3 of 2024. In a recent meeting, the company did not mention the impact of the delay of the new architecture GPU, indicating that the effect of the delay may be minimal.

2. Has the demand for existing products increased?

The decline of the new architecture chips can be offset by increasing the growth of existing models in the second half of 2024.

According to the analysis and prediction, the production of the new architecture chip substrates has been corrected by 44%. Although deliveries may be partially delayed until the first half of 2025, resulting in a decrease in shipments in the second half of 2024, existing model substrate orders have significantly increased, expected to grow by 57% from the third quarter of 2024 to the first quarter of 2025.

Based on this estimate, the revenue from existing models in the second half of 2024 is expected to be $23.5 billion, which should be sufficient to offset the potential loss of $19.5 billion related to the new architecture - equivalent to 500,000 new architecture GPUs or an implied revenue loss of $15 billion, as well as an additional loss of $4.5 billion in supporting facilities revenue. We also see potential upside from the strong momentum of other models of GPUs, primarily aimed at the Chinese market, with shipments in the second half of 2024 potentially reaching 700,000 units or an implied revenue of $6.3 billion.

In addition, the step-wise increase in packaging capacity of certain foundries may also support revenue growth from the supply side.

On the client side, ultra-large-scale technology companies in the United States account for more than 50% of the company's data center revenue. Their recent comments indicate that the company's demand outlook will continue to increase. A forecasting model from a certain institution shows that global capital expenditure in cloud computing is expected to grow by 60% and 12% year-on-year in 2024 and 2025, respectively, surpassing previous forecasts of 48% and 9%. However, it can also be seen that this year is a year of significant growth, and it is not possible to maintain the same growth level next year.

The following summarizes the recent comments from major technology companies regarding AI capital expenditures, indicating their perspectives for 2024 and 2025.