CITIC SEC: After the December Federal Reserve interest rate meeting, the US stock market is expected to regain its upward trend.

CITIC SEC issued a research report stating that the overall US stock market will experience a slight downward shock until the Fed interest rate meeting on December 10-11, with funds shifting from technology to defensive healthcare and utilities. It is expected that President Trump will nominate a new candidate for the Federal Reserve Chairman, which is likely to lead to trading expectations for looser monetary policy. Therefore, the US stock market may rebound starting in the second half of December, and the tax cuts for residents starting on January 1 next year will also provide some support from the fundamental dimensions of employment and consumption. At the industry level, it is recommended to focus on: 1) technology industries in the US stock market where valuation and performance are more aligned; 2) manufacturing, upper-stream resources, and energy infrastructure (especially nuclear power) benefiting from the process of re-industrialization and policy favorability; 3) military industry with fiscal injections; 4) internet diagnostics benefiting from reduced medical expenditures or favorable policies; 5) financial industry (especially banks) during the interest rate cut cycle. Events: On November 20, the overall US stock market opened high and then fell, especially with a significant drop in technology stocks, with the Nasdaq 100 and the Philadelphia Semiconductor Index falling by 2.4% and 4.8% respectively. Particularly, some technology stocks that have seen significant gains since the beginning of the year (over 50%), including Micron, AMD, Lam Research, and Palantir, all dropped by over 5%. However, after Nvidia disclosed better-than-expected third-quarter earnings and future guidance, CITIC SEC judged that the overnight decline was more a result of profit taking driven by macro factors, rather than a panic sell-off due to fears of an AI bubble burst by investors. After the release of the September non-farm payrolls data in the US, hawkish comments from Fed officials have raised expectations of monetary tightening. The US added 119,000 new non-farm jobs in September, exceeding the market's expectation of 51,000. The better-than-expected non-farm data, combined with a series of hawkish speeches by several Fed officials, further boosted market expectations for monetary policy tightening. According to reports from Bloomberg and Reuters, Fed Director Michael Barr stated that since the current inflation level is still hovering around 3%, distant from the 2% target, a decision on lowering interest rates needs to be more cautious; Cleveland Fed President Beth Hammack reiterated her opposition to further interest rate cuts; even Chicago Fed President Austan Goolsbee, who had a relatively neutral stance before, expressed concern about further rate cuts in December. The hawkish remarks from Fed officials jointly drove the market to reprice expectations on the monetary policy path, indicating that the Fed may be more inclined to maintain the current interest rate level rather than a rate cut at the December meeting, and may even keep the interest rates unchanged for long until a clear downward trend in inflation emerges. However, the US employment market's weakening trend has not changed, and the market's "hawkish panic" trading may be close to its peak. Looking at labor market data, the U3 unemployment rate rose from 4.3% in August to 4.4% in September, while the U6 underemployment rate, reflecting a broader measure of unemployment and marginal labor conditions, dropped from 8.1% to 8.0%, with the labor participation rate rising to 62.4%. The simultaneous rise in new job additions, participation rate, and unemployment rate suggests that labor supply improvement and job substitution may be occurring concurrently. However, the better-than-expected non-farm payroll data does not necessarily indicate a full recovery in the US labor market, considering the cumulative downward revisions of 33,000 jobs in July and August, a trend that has continued throughout this year, raising the possibility of further downward revisions to the September job data. Thus, the actual weakness in the US job market may be masked by the hawkish remarks from Fed officials. Looking ahead, CITIC SEC believes that the December Fed interest rate meeting could mark the peak of the current "hawkish panic" sentiment, and the market's trading focus may shift towards the nomination game for the new Federal Reserve Chairman by President Trump; unless a candidate like Kevin Warsh, who is relatively hawkish and does not support QE, is nominated, the market is expected to return to a logic of trading focus on loose monetary policy after the dust settles regarding the new Fed Chair nomination. The extreme narrative of the "AI bubble" bursting may be difficult to materialize in the short term. On the demand side, the diversification competition between the US and China has driven model iteration and full-stack innovation. According to Google's performance disclosure, the Google Token monthly transaction volume soared from 9.7 trillion in April 2024 to 13 trillion in October 2025. Under a neutral assumption, it is expected that the global monthly Token consumption volume will triple by the end of 2026 compared to current levels, and by 2030, with the widespread adoption of multi-mode and AI intelligence bodies, the consumption is expected to increase by 20 times. Meanwhile, the continuous upgrade of chip and system performance on the supply side lowers the unit computing cost, providing support for demand release. Despite bottlenecks in multiple links in the supply chain, concerns of overcapacity are not yet valid. On the commercialization front, there is a disconnect between Token consumption and commercial returns, but the gradual implementation of scenarios like advertising implantation, Agent Commerce, and enterprise solutions is driving the industry from "scale growth" to "value growth," with the short-term breakthrough in commercialization of SaaS vendors becoming crucial. On the funding side, according to performance discussions among companies, the CAPEX of the four major tech giants worldwide in Q3 2025 had a year-on-year increase of 74%, with raised guidance and strong cash flows supported by policy tax incentives. In terms of risks, CITIC SEC believes that the saturation point for AI search is approaching, and future Token growth will depend on consumer scenarios and Agent landing, with debt financing risks concentrated among small and medium cloud service providers. Short-term challenges for ecosystem collaboration between OpenAI and Nvidia remain unverified, and overall, do not constitute a trigger for the bursting of an industry-wide bubble. US earnings expectations continue to rise, while valuations have narrowed. Since the end of October, earnings expectations for US stocks have continued to rise, focusing on information technology and healthcare sectors. Meanwhile, the retraction of indices and multi-plate prices combined with profit upgrades have led to a significant narrowing of dynamic valuations. According to LSEG data as of November 21, revenue growth expectations for SPX500 in 2025/2026 were revised up by 0.1pcts/0.4pcts respectively compared to the end of October, while profit growth expectations were revised up by 0.03pcts/1.0pct respectively. However, during the same period, the S&P 500/Nasdaq 100 fell by 4.2%/6.5%, causing rapid declines in the PE/PEG ratios for US stocks. In terms of structure, the increase in revenue growth expectations for 2025 mainly focused on the IT and financial sectors, with upgrades of 0.4pcts each; profit growth expectations were mainly increased for the real estate, IT, and energy sectors by 0.7pcts/0.5pcts/0.5pcts respectively; while the revenue growth expectations for 2026 were mainly concentrated in healthcare and communication services sectors, with 1.7pcts/0.8pcts increases respectively; profit growth expectations were mainly increased for the healthcare and daily consumption sectors by 3.6pcts/2.2pcts respectively. During the same period, the largest declines in information technology/non-core consumption/industrial sectors and valuations (PE TTM) were observed. CITIC SEC believes that the recent retractions in US stocks, especially in technology stocks, are mainly driven by the contraction in valuation multiples rather than deterioration in profit expectations. US stock market outlook: after the December Fed interest rate meeting, US stocks are expected to regain an upward trend. In the short term, US institutional investors are expected to gradually reduce their trading activity after Thanksgiving on November 27 this year, leading to an increase in retail trading activity. Regarding expectations for monetary policy, there are no significant new economic data releases expected before the December Fed interest rate meeting. The CPI data originally scheduled to be released by the US Labor Department on December 10 will be delayed until December 18, and the PCE price index originally planned to be released by the US Department of Commerce on November 26 will be postponed. The quarterly reports of heavyweight stocks in the US stock market are expected to have been released by this time as well. Therefore, CITIC SEC believes that the overall US stock market will experience a slight downward shock until the Fed interest rate meeting on December 10-11, with funds shifting from technology to defensive healthcare and utilities. It is expected that President Trump will nominate a new candidate for the Federal Reserve Chairman, which is likely to lead to trading expectations for looser monetary policy. Therefore, the US stock market may rebound starting in the second half of December, and the tax cuts for residents starting on January 1 next year will also provide some support from the fundamental dimensions of employment and consumption. At the industry level, CITIC SEC recommends focusing on: 1) technology industries in the US stock market where valuation and performance are more aligned; 2) manufacturing, upper-stream resources, and energy infrastructure (especially nuclear power) benefiting from the process of re-industrialization and policy favorability; 3) military industry with fiscal injections; 4) internet diagnostics benefiting from reduced medical expenditures or favorable policies; 5) financial industry (especially banks) during the interest rate cut cycle.