The recent market is a back-and-forth game of the three core contradictions of Trump economics (tariffs, immigration, and tax cuts), AI industry studies, and expectations of Chinese policies. After the Trump concept retreated due to weaker U.S. October consumption data and a slight pullback in the dollar index (from 107 to 106), funds returned to technology stocks, primarily in the Nasdaq.

As for Chinese concepts, Dolphin Jun mentioned in last week's strategy report “With major policy meetings approaching, will there be miracles?” that with the dollar index retreating from its highs, and with two significant policy meetings approaching at the end of the year—the Politburo meeting and the Central Economic Work Conference—the lower the 10-year Chinese government bond yield and the weaker the price data, the more one can expect policy statements during the meetings.

1. The U.S. economy did not start off too well in November

As December begins, the U.S. starts releasing economic operation data for November. The key data so far mainly includes employment, wage data, and PMI data. While these numbers vary, overall performance, combined with individual stock earnings guidance, leads Dolphin Jun to lean towards the view that the economy is gradually weakening.

First, looking at employment data, November saw an increase of 227,000 non-farm jobs, which initially appears quite good and exceeds market expectations. However, this follows a mere increase of 36,000 (after revision) in the previous month due to the impacts of hurricanes and strikes. A clear view of the data by industry shows significant employment fluctuations in manufacturing and leisure/hospitality sectors due to strikes and hurricanes.

Averaging the employment numbers over these two months results in a monthly increase of 130,000, which is noticeably lower than the average increase of about 170,000 in previous months.

However, the data from business surveys and household surveys diverged again. The unemployment rate indicated by the household survey increased despite no rise in the labor participation rate, with a noticeable increase in the number of unemployed

From the PMI data, the manufacturing PMI was 48.4 last month, recovering from 46.5 the previous month. However, by November, this figure has been hovering below 50 for eight consecutive months. There is no indication from inflation-related commodity prices, U.S. manufacturing capacity utilization, or changes in retail inventory that the manufacturing sector will re-enter an expansion phase in the short term.

Although the service sector PMI remained in the expansion zone in November, it narrowed from 56 in October to 52, with business activity, new orders, hiring, and inventory all contracting to varying degrees.

Overall, while the economic data for November so far has been mixed, it is generally trending weaker. Correspondingly, both the 10-year U.S. Treasury yield and the U.S. dollar index have gradually declined after the Trump trade, in line with the economic fundamentals.

Moreover, based on this economic trend, the Federal Reserve may proceed with a routine 25 basis point rate cut at each meeting before the first quarter ends, bringing the benchmark interest rate down to between 3.75% and 4%. However, as it approaches 3.5%, it will enter a "Hard" mode, which needs to be considered in conjunction with the implementation of policies after Trump's administration and actual inflation trends. If inflation is difficult to bring down to 2.5% in the second half, the extent of rate cuts after the first quarter next year remains a significant issue.

II. Difficult Asset Selection

Looking at 2025 from this point, U.S. stocks are generally highly valued, with a significant concentration of holdings in technology, AI, and software stocks. Interestingly, despite the heavy criticism of Hong Kong stocks and the marginal deterioration of fundamentals, the valuation perspective has actually seen a slight recovery.

To some extent, when valuations are low enough, it may be more beneficial to focus on potential policy support and possible reversals rather than the fundamentals (which may have already priced in worse fundamentals than reality).

Therefore, as part of the diversified asset allocation for 2025, it may be worth considering the possibility of valuation recovery for Chinese assets under a series of policy supports. Especially if the U.S. economy continues to weaken marginally and the dollar remains in a rate-cutting cycle and expectations, the domestic policy maneuvering space will also open up

Currently, China's assets are in a policy implementation period from now until the first quarter of 2025 (before the Two Sessions). Additionally, this year's extended Spring Festival holiday has boosted seasonal consumption. For China's consumer assets (which have seen some recovery during the Spring Festival holiday season in the past two years), there is actually no need to be overly pessimistic. When there is a significant pullback due to negative fundamentals or external environments, it may be worthwhile to think contrarily about potential opportunities.

Especially considering the signals from today's Politburo meeting: a. For the first time since 2008-2010, the monetary policy tone has been changed to "moderately loose"; b. The emphasis on domestic demand and consumption has been placed ahead of technological innovation and industrial integration, implying a priority on stabilizing domestic demand next year; c. Stabilizing the real estate and stock markets indicates that, as part of reversing deflationary expectations, stabilizing asset prices is equally important as monitoring prices; d. Extraordinary counter-cyclical adjustments imply unconventional policy tools, including central government leverage, etc.

However, in terms of pace, it should still be a step-by-step approach, rather than a frenzied bombardment of monetary and fiscal measures like the U.S. response to the pandemic. Expectations for policy should not be overly aggressive.

3. Portfolio Adjustment and Returns

There were no adjustments to the portfolio last week. The Alpha Dolphin portfolio's return fluctuated by 1.5%, underperforming the Hang Seng Tech (2.56%) and MSCI China (2.6%), but slightly outperforming the CSI 300 (1.4%) and S&P 500 (+1%). The underperformance was mainly due to the decline in gold holdings within the portfolio, while the Dolphin equity assets returned 3% last week.

Since the portfolio began testing (March 25, 2022) until last weekend, the absolute return of the portfolio is 68%, with an excess return of 78% compared to MSCI China. From the perspective of net asset value, Dolphin's initial virtual asset of 100 million USD has exceeded 169 million USD as of last weekend.

4. Individual Stock Profit and Loss Contribution Last week, both Chinese concept stocks and US tech stocks showed significant recovery. Among US assets, except for Uber, which was spooked by Tesla's launch of V13, other stocks like Meituan and Alibaba did not experience large declines. TSMC and Amazon, heavily invested by Alpha Dolphin, both saw considerable gains.

For a detailed analysis of the reasons behind the significant fluctuations in the stocks covered and tracked by Dolphin, please refer to the chart below:

5. Asset Allocation Distribution

Alpha Dolphin's virtual portfolio consists of 14 stocks and equity ETFs, with a standard allocation of 3 stocks and 8 equity assets under-allocated. The remainder is distributed among gold, US Treasury bonds, and US dollar cash. As of last weekend, Alpha Dolphin's asset allocation and equity asset holding weights are as follows:

6. Key Events This Week:

By the end of this week, the third-quarter earnings season for the Hong Kong and US stocks tracked by Dolphin will be completely over. This week, Boss Zhipin will release its performance report, which has recently been previewed and is expected to be poor. According to the logic of stock price movements following earnings reports this quarter (good earnings lead to declines, poor earnings lead to increases), it should not mean much for Boss, which holds a large amount of cash, to further take a bearish stance.

Broadcom is focusing on the pace of AI revenue growth under ASIC logic and the marginal changes in VMware's revenue growth; Costco is a key beneficiary retail stock following the current trend of frugality in US consumer spending, and it will be interesting to see if the third-quarter performance can continue to validate this logic.