Just now, the US dollar hit a six-month high, and the US stock market "lost its composure", while Chinese concept stocks rebounded at this moment.

The Federal Reserve warns of longer-term high interest rates, and overnight Fed officials turn hawkish again, sending the US dollar to a six-month high and causing a downturn in the US stock market sentiment once again.

The ICE US Dollar Index (DXY) maintained its upward trend throughout Friday, closing up 0.2% at 105.60, reaching its highest level since early March. The US Dollar Index has risen for ten consecutive weeks, marking the longest continuous weekly gain since 2014.

The three major US stock indexes collectively fell for the fourth consecutive day, with the S&P and Nasdaq hitting their lowest levels in over three months, and the Dow hitting its lowest level in two months. This week, the S&P has fallen by 2.93%, the Nasdaq has fallen by 3.62%, and the Nasdaq 100 has fallen by 3.3%, all marking the largest weekly decline since the week of the Silicon Valley bank collapse.

The bond market continued its weakness, with the yield on the 10-year US Treasury briefly hitting a 16-year high during the Asian session, but falling by 6 basis points during the European and US stock market trading sessions.

With the prospect of longer-term high interest rates, the market sentiment that has been boosted by AI and the stock gods this year has undergone a sharp reversal.

"The market's reaction to the Federal Reserve has been extremely negative. The policy of higher interest rates in the longer term has clearly been established, and we are entering a new era," said James Briggs, portfolio manager at Janus Henderson Investment Company.

Hawkish expectations heat up, bullish sentiment sharply reverses

Hedge funds have already noticed the recent downside risks. Brian Garrett, the derivatives master at Goldman Sachs, stated in a report released overnight that according to the latest Goldman Sachs prime brokerage data, bullish sentiment has undergone a sharp reversal, and the net exposure of the US stock market has sharply declined from its peak this year.

Moreover, more importantly, given the recent surge in short positions, Goldman Sachs' bulk brokerage team stated that the "pain trade" has now become more severe, as the squeeze on shorts is now only a matter of "time" rather than "whether."

The Federal Reserve's decision to keep interest rates unchanged on Wednesday was in line with expectations, but it raised its interest rate expectations for the next two years, sending a hawkish signal that it intends to maintain higher rates for longer. Following that, Federal Reserve officials continued to sound hawkish: Governor Bowman and Boston Fed President Collins both stated that if economic data does not cooperate, the Fed may still continue to raise interest rates, with Bowman suggesting that there may be more than one rate hike.

In addition, some market participants warned that prolonged high interest rates could have a chilling effect on the economy and further weaken the stock market.

"This is an unstable situation," said Joseph Davis, Global Chief Economist at Vanguard Group, a major US mutual fund giant.

He said that historically, inflation has usually been defeated at the cost of slowing economic growth, "there is almost no precedent for reducing inflation without weighing the pros and cons."

AI and the collapse of the stock market faith, Chinese concept stocks rebound strongly

Under this extremely pessimistic sentiment, two popular sectors in the US this year, technology stocks and construction stocks, have declined across the board this week.

Tesla fell 4.2%, marking a three-day decline and hitting a closing low since September 8th, with a cumulative decline of 10.8% this week after a four-week rally, giving back all the gains from last week.

Among the six major technology stocks in FAANMG, Amazon fell slightly by 0.2%, with a cumulative decline of about 8% for the week; Alphabet, the parent company of Google, fell nearly 0.2%, with a cumulative decline of 5.2% for the week; Microsoft and Netflix fell 0.8% and 1.1% respectively, with cumulative declines of 4% and 4.3% for the week. Apple also edged lower this week.

Most AI concept stocks continued to decline, with C3.ai, SoundHound.ai, and BigBear.ai all falling more than 4% at the close, Adobe falling nearly 0.2%, and Palantir rising 0.9%. Vanda Research pointed out that investment funds flowing into AI concept stocks continue to decline, and retail investors' interest in AI concept stocks such as Microsoft, NVIDIA, and Palantir is decreasing.

You should know that the double-digit increase in the US stock market this year is mainly driven by the AI investment frenzy. The valuation of the AI sector has reached astonishing levels. With the rise in interest rates, doubts are starting to emerge. Once the AI belief completely collapses, the overall US stock market will collapse.

Que Nguyen, Chief Investment Officer of Research Affiliates, said, "Higher capital costs are unfavorable for stock valuations." "In other words, large technology companies are unique companies with low leverage, abundant cash flow, and wide economic moats. These characteristics prove that their valuations are higher than the average level. However, at some point, absolute and relative valuations cannot expand further, and the major technology giants may be approaching this point."

The construction stocks are sending out a signal of extinguishment. The S&P 1500 Homebuilding Index, which is favored by the stock god Warren Buffett, has fallen by 4% this week. Among the construction stocks, DR Horton, the largest residential construction company in the United States, has fallen by 4% this week, while Lennar and NVR, two other construction companies, have fallen by more than 1% and 3% respectively.

According to the regulatory documents previously disclosed by Berkshire Hathaway, the company increased its holdings of DR Horton, the largest residential construction company in the United States. In June of this year, Buffett also bought two other construction companies, Lennar and NVR. The "blessing of the stock god" has made US real estate stocks fearless of the sharp rise in interest rates. However, as the Federal Reserve sounded the alarm for longer-term high interest rates, the "faith in the stock god" began to collapse, and the construction stocks experienced the first wave of selling in early September.

Amidst the overnight wailing, Chinese concept stocks have emerged with an independent trend.

The Nasdaq Golden Dragon China Index (HXC) closed up by about 2.9%, breaking away from the closing low since July 6, which was set after five consecutive days of decline. Among individual stocks, Bilibili rose by over 5%, NetEase rose by over 5%, Alibaba rose by nearly 5%, Pinduoduo and Tiger Brokers rose by over 4%, iQiyi rose by nearly 4%, Tencent Music, Baidu, and XPeng Motors rose by over 3%, Li Auto rose by over 2%, JD.com rose by 2%, and NIO rose by nearly 1%.