Debon Securities: Global funds may require rebalancing, short-term market may still be dominated by inflation trading.

Debon Securities released a research report stating that multiple factors are causing a pullback in the US stock market, and there may be a need for global fund rebalancing. In the short term, the market may still be driven by inflation trading, and it is recommended to pay attention to the major US stock market indices such as the Dow Jones Industrial Average, Nasdaq 100, and Russell 2000 Pure Value. However, with the overall market valuation on the high side, the upside potential may be relatively limited. The trend of Hong Kong stocks is diverging from A-shares, with a more significant correction in the previous period and recent fluctuations showing resilience. The low valuation of Hong Kong stocks presents a good opportunity for investment, and it is recommended to focus on sectors such as Hang Seng Tech and Hong Kong Internet. Debon Securities' key points are as follows: Last week saw a collective pullback in global stock markets. The European markets experienced a small pullback, with the Germany DAX, UK FTSE 100, and France CAC 40 indices recording changes of -0.02%, -0.1%, and -0.9% respectively. In the US, the Dow Jones Industrial Average, S&P 500, and Nasdaq saw changes of -1.2%, -2.1%, and -3.1% respectively. In the Asia-Pacific region, the Nikkei 225 and India's SENSEX 30 experienced small pullbacks, while the Korea Composite Index, Hang Seng Index, and Hang Seng Tech Index saw more significant declines. The US economic data diverged, with concerns about renewed inflation and resilient consumer spending affecting market expectations of rate cuts, potentially reducing the number of rate cuts to follow. October's US CPI data met market expectations. According to data from the Bureau of Labor Statistics, housing costs accounted for over half of the growth in all items in October, becoming a major driver of inflation. This phenomenon highlights the significant influence of housing costs on overall inflation levels, emphasizing the importance of the housing market in the economy. The so-called "super core" services index, excluding housing costs, had the smallest increase in October in three months. Subsequently, US retail sales data showed that consumer spending in the US remains strong, with September's retail data unexpectedly revised upwards and continued month-on-month growth in October's retail sales exceeding expectations. As a result, rate markets significantly reduced their expectations of rate cuts by the Federal Reserve in December and in 2025. The CME Federal Reserve Watch Tool showed that following the release of rising CPI, PPI, and strong retail sales data, the probability of the Fed pausing rate cuts in December increased from under 30% to close to 40%, and the market now expects the number of Fed rate cuts next year to have reduced from the previously anticipated four cuts to two cuts. Multiple factors have led to a pullback in the US stock market and may cause a need for global fund rebalancing. The collective pullback in the three major US stock indices last week caused a decline in major global markets, particularly following the release of retail sales data, resulting from a combination of multiple factors. Firstly, renewed inflation risks. Continued sticky inflation in the US and a series of policies promised by Trump since taking office, including tax cuts, immigration crackdowns, and tariff increases, may increase expectations of renewed inflation. Secondly, Powell's hawkish stance. On November 14th, Federal Reserve Chairman Powell stated, "Current economic data do not signal a need for rapid rate cuts," causing market doubts about the pace of future rate cuts by the Fed. Thirdly, the need for fund rebalancing. Currently, the constituents of the S&P 500 index in the US account for over 50% of the total market value of global stock markets. Therefore, given the unclear policy direction post-Trump's reelection and uncertainty surrounding the Fed's monetary policy, there is a need for global funds to rebalance. Fourthly, record high valuations in the US stock market. According to Warren Buffett's preferred measure of US stock valuation, the "Buffett indicator," which measures the total market value of US stocks as a percentage of Gross Domestic Product (GDP), has recently reached a historical high of 209%. Additionally, the current Schiller Price-Earnings Ratio of US stocks has reached a level of 37.5, close to the highest level in nearly 20 years, raising concerns in the market about a possible bubble in the US stock market. Risk warning: Overseas inflation rebound exceeds expectations; global economic conditions fall short of expectations; geopolitical situations exceed expectations.