China Securities Co., Ltd.: Rate cuts are expected to significantly stimulate market vitality. Recommended leading companies in the household appliance export chain and tool sector.

China Securities Co., Ltd. released a research report stating that the new round of interest rate cuts by the Federal Reserve is about to begin, benefiting the U.S. real estate chain. Historical reviews show that a 150-200bp decrease in mortgage rates can drive a major market rally, with assets benefiting from the rate cut typically seeing valuation increases. The passing of the large and beautiful U.S. bill has significantly increased the country's fiscal deficit, creating room for interest rate cuts. Under pressure from high interest rates, the U.S. real estate market is in urgent need of a rebound, and the interest rate cuts are expected to significantly boost market activity. It is recommended to seize the investment opportunities in the electrical and power tool export companies during the interest rate cut period. Leading companies in the electrical export chain and tools sector are recommended. The main points of China Securities Co., Ltd. are as follows: Interest rates-Real estate-Post-cycle precise transmission, the U.S. real estate chain's beta is experiencing a systemic reversal The strong cyclical nature of the U.S. electrical and tools industries is reflected in the demand closely following real estate cycle changes, with the revenue fluctuations of post-cycle leaders almost mirroring trends in U.S. existing home sales. Currently, the U.S. real estate market is at a historical low turning point, and tool demand is expected to enter a recovery phase along with the real estate cycle. Question 1: How to view the stock price space and pace during the interest rate cut period? In terms of space, the elasticity of U.S. post-cycle stocks is considerable. Reviewing the three large interest rate cut cycles since the 21st century, a 150-200bp decrease in mortgage rates can drive a doubling-level rally for post-cycle companies. In terms of pace, the introduction of the dot plot by the FOMC in 2012 enhanced the predictability of interest rate policy, coupled with the learning effect of past interest rate-real estate transmissions, significantly shortening the lag in the stock prices of post-cycle real estate companies in response to Federal Reserve rate cuts. Question 2: How to view the certainty and magnitude of the interest rate cut? The current federal funds rate in the U.S. is in a state of decline from high levels. The incremental debt brought about by the large and beautiful bill will further raise interest rate pressures. In order to reduce the risks of high interest payments and alleviate the increasing pressures of unemployment, large-scale interest rate cuts are the inevitable policy choice for the White House. With significant weakness in employment, the focus of the Federal Reserve policy is gradually shifting from inflation control to recession prevention, leading to a sharp increase in expectations for an interest rate cut in September. Question 3: How to understand the current position of the U.S. real estate market? The U.S. real estate market is at its lowest transaction level in nearly 20 years, with strong demand momentum, but suppressed by the "interest rate lock-in" effect, the market has been building energy for 2-3 years. Interest rate cuts combined with millennials entering the housing market are expected to effectively activate the U.S. real estate market. Market concerns whether moderate interest rate cuts under a high interest environment are effective - referencing the recovery experience during the stagflation of the 1980s, moderate interest rate cuts in a high interest environment can also significantly boost the real estate chain. Real estate repairs combined with a shift in cycles, the turning point for the post-cycle real estate sector has arrived As the expectations for U.S. interest rate cuts gradually become clearer, U.S. mortgage rates are expected to decline, leading to a gradual recovery in the U.S. real estate market in 26H1, driving further increases in the prosperity of the electrical and tools industries. In terms of tariffs, Southeast Asian production capacity can withstand tariff pressures not exceeding the domestic capacity for 24 years, and the overall impact of capacity shifts can be managed. Risk Warning: Macroeconomic volatility risks, overseas recession risks, changes in retailer restocking policies, increased market competition, etc.