GF SEC: Four switches behind the assets

GF SEC released a research report stating that there are four key macro clues for current asset pricing. The agency pointed out that stocks as risky assets still have an advantage; the global AI narrative cycle continues, but the overall impact will gradually lead to differentiation of expectations, and the US stock market will gradually transition to differentiation characteristics; in terms of domestic assets, exports and technology have been fully priced, while pro-cyclical sectors have favorable odds and increasing win rates, enhancing asset diversification characteristics. However, there may be variables among the four clues, so it is necessary to closely monitor and be prepared for scenario shifts to avoid excessive betting on a single direction. GF SEC's main points are as follows: There are four key macro clues for current asset pricing, but they currently do not have a clear, unilateral, and deterministic direction. We can liken them to four "switches": Switch one: Geopolitical switch. The situation in the Middle East is still unclear. CCTV news reported on May 30 that the game around the US-Iran understanding memorandum is still ongoing. Trump reaffirmed a tough stance and said a "final decision" would be made, but it was later reported to have ended without result; while Iran adamantly denied reaching an agreement and reiterated its control over the Strait of Hormuz. Switch two: Fed switch. The direction of the Fed's policy is currently unclear. Powell's policy label is "rate cut + balance sheet reduction", but the conditions for a rate cut do not seem to exist at the moment. Last week, several Fed officials warned that the core inflation rate is still too high, and if high inflation continues, there is a possibility of being forced to take contractionary measures. According to current Fed Watch data, the market expects a 51.8% probability that the Fed funds rate will remain unchanged at the end of 2026, and a 48% probability of a rate hike. Switch three: AI total effect switch. One of the total effects of AI is bringing in new investment and increasing labor productivity. Currently, the capital spending growth brought about by AI is still strong, and the wave of agents is still on the rise; the other total effect of AI is affecting short-term employment. Although the April non-farm payroll data released in early May was still good, employment in the information sector (-13,000) and financial sector (-11,000) showed significant declines, indicating that employment changes in AI-exposed industries are beginning to occur. Logically, if the US unemployment rate rises significantly in the future, it will affect corporate profits and cash flow, and the sustainability of AI capital spending will also be affected. Switch four: China's domestic demand switch. Since 2025, the relative strong sectors of the domestic economy have been exports and technology; the relatively weak sectors have been investment and consumption. Fixed investment and consumption showed initial improvements in the first quarter, but there was a slight setback in April, reflecting the unstable trend of domestic demand. A positive signal is the latest BCI data for May showing that the forward-looking investment index for enterprises has reached a new high for the year, indicating that policy financial instruments are beginning to take effect. If fixed investment continues to improve in the future, domestic demand, including consumption, may be driven. Our preferred assumption is that geopolitical tensions will eventually ease, the Federal Reserve will maintain an "unchanged" observation stance, US employment will continue to ease under structural AI impact without triggering a recession, and domestic demand will see initial improvements as policy financial instruments are implemented and fixed investment recovers. The geopolitical switch has a "floor" effect on assets and, once realized, may bring about a temporary increase in risk appetite. Overall, under this combination, stocks still have an advantage as risky assets; the global AI narrative cycle continues, but the total effect will gradually lead to differentiation of expectations, and the US stock market will gradually transition to differentiation characteristics; in terms of domestic assets, exports and technology have been fully priced, while pro-cyclical sectors have favorable odds and increasing win rates, enhancing asset diversification characteristics. However, among the four clues, there may be variables, so close monitoring and preparation for scenario shifts are necessary to avoid excessive betting on a single direction.