2024 is expected to be a year where stock prices are significantly driven by technological transformation. However, apart from technological changes, the stable performance of the United States, as the fundamental driver of global economic growth, is a basic prerequisite.

Recently released macro data, along with important events in individual stocks related to AI technology, seem to resonate once again, suggesting that the AI economy in the industry combined with perfect macro deleveraging has painted a perfect picture for 2024:

1. Perfect "Deleveraging"?

The recently released third-quarter macro debt ratio and the balance sheet of U.S. households, along with the previous third-quarter GDP data, allow us to see more clearly how the U.S. has achieved "perfect deleveraging" post-pandemic.

Firstly, due to increased fiscal revenue, the federal fiscal deficit ratio in the U.S. has steadily declined, leading all major economic sectors in the U.S. to finally enter a deleveraging state in the third quarter.

While the macro leverage ratio has decreased, the GDP growth in the third quarter has not slowed down, with a quarter-on-quarter annualized growth of 2.8%. The consumption of goods and services by households remains the core driving force of economic growth.

However, a rather strange aspect of the household balance sheet is that although the household savings rate (the share of income allocated to savings, which can be deposits or financial management) has continued to decline in the third quarter, the amount of household deposits has actually increased (both year-on-year and quarter-on-quarter), and the equity assets held by households have also continued to grow due to the simultaneous rise in stocks and bonds.

In other words, as households invest more of their earnings into consumption, their deposits and asset values have actually increased. This means that the more they spend, the more they save and earn from investments. The direct explanation here can only be that after entering a benign inflation environment, the return on existing assets has strengthened (the ROI of existing assets has increased).

The ultimate reason behind this may still be the accelerated penetration of online services post-pandemic and the structural improvement in production efficiency brought about by AI technology. A very clear issue that can be seen from this data is that deleveraging is effective when the economy is doing well; asset inflation is an effective means of deleveraging, while during economic downturns, deleveraging tends to increase debt levels

II. Slow Decrease in Inflation

Looking at the latest inflation progress in the U.S. during the economic soft landing process, the U.S. CPI and core CPI both rose to a month-on-month growth rate of 0.31% in November, while a month-on-month growth rate of 0.25%+ points to an annualized year-on-year rate of 3%. The November figures once again fueled the market's expectation that the so-called steady-state CPI year-on-year will hover around 3% for a long time.

However, one significant difference last month was that the slight uptick in core inflation in November was not driven by service inflation or housing inflation, especially as prices in categories such as insurance, healthcare, and transportation remained very stable.

The marginal growth in November was mainly contributed by goods that had been in continuous deflation for half a year: key automobiles (including new and used cars, which account for 5.4% of the total price weight) were the main categories driving price increases. Other categories such as tobacco and clothing also began to rise slowly.

However, from the perspective of goods, looking at the continuously declining capacity utilization rate in the U.S., especially in the automotive sector (which has been declining for nine consecutive months), this increase is unlikely to be sustainable and seems more like a short-term inventory consumption issue.

Excluding the disturbances from fluctuations in commodity prices and purely looking at the "stubborn" service inflation, apart from housing costs still hovering around a month-on-month increase of 0.3%, the other two categories are healthcare and those with a high labor component that are difficult to replace with technology.

Overall, the rebound in prices in November appears to be more like an internal industrial rotation within the economy, with commodity inventory digestion reaching a temporary pause. However, due to the still low capacity utilization rate in manufacturing, it is hard to say that commodity consumption has truly rebounded, while service consumption, although slowing down, is still doing so at a very slow pace Although this CPI does not constitute a true rebound in the real sense, it clearly has not led the market to question the expectation that "the era of low inflation in the U.S. at 2% is gone, and the post-epidemic CPI steady state will stand at 2.5-3%."

Such inflation data will not affect the Federal Reserve's pace of interest rate cuts in the short term, but it will raise long-term economic growth expectations. As a result, the yield on 10-year U.S. Treasury bonds has accelerated its rebound, and the yield curve has steepened again.

II. U.S. stocks are rotating, while Chinese concepts are correcting?

In the context of relatively strong economic growth momentum, the performance of an important company or the release of a product can become a trigger for market growth. Recently, major AI companies in the U.S. have released new versions of their large models and showcased new technologies. Broadcom's declaration of the "ASIC era" during earnings season has led market funds to shift back to the Nasdaq after speculating on the Dow Jones and small-cap indices under Trump's administration. It seems that U.S. stocks are only rotating.

The current macro environment facing Chinese assets has led the market to believe that policy is the only remedy. Although China's retail sales data in November looks poor at first glance, after accounting for the differences in promotional timing, the actual performance has slightly improved (for a detailed interpretation, see “November Retail Sales Review: 'Double Eleven' Becomes 'Double Ten' Is the 'Behind-the-Scenes Manipulator'”).

However, from the categories, we can see that the categories with better sales—such as automobiles and home appliances—are mainly subsidized products for trade-ins. It is evident that current consumption requires subsidies to be stimulated. Additionally, although retail sales have slightly warmed, prices in November remain sluggish, and the market hopes that policies can continue to exceed expectations.

However, the recently concluded Central Economic Work Conference set a relatively rational tone, with no significant surprises. The content expressed in the meeting, such as "boosting social confidence and a clear economic rebound" after the 926 Politburo meeting, implies that the announced scale and intensity of policies are quite good.

The meeting emphasized "stabilizing growth, stabilizing the real estate market, and stabilizing the stock market"; the key directions for fiscal spending are "two importance" (implementation of major national strategies and construction of key area security capabilities) and "two new" (large-scale equipment upgrades and trade-in for consumer goods).

Stabilizing housing prices, stock prices, and prices in general is fundamentally about combating deflation. The "two importance" indicates that in the process of stimulating domestic demand and combating deflation, industrial upgrading must continue, but compared to a large number of projects, future emphasis will be placed more on projects that enhance investment efficiency. Overall, the expression remains relatively rational; the long-term goal of industrial upgrading remains unchanged, but efforts will also be made to address the issue of domestic demand contraction during the current economic adjustment.

From late September to now, the period of intensive policy announcements has basically come to an end. The remaining time will depend on whether macroeconomic data can truly recover. This process will likely be accompanied by profit-taking from the previous policy game, and Chinese assets are facing a short-term correction However, after New Year's Day, as we approach the Spring Festival, this extended holiday period may not exclude the possibility of local consumption vouchers (whether for goods or services). Nevertheless, to some extent, under the policy logic of combating deflation, the vicious spiral of shrinking expectations for consumer goods has passed. After a correction, good consumer goods can still be monitored for future opportunities.

3. Portfolio Adjustment and Returns

There was no adjustment to the portfolio last week. The Alpha Dolphin portfolio's return fluctuated by 0.2%, slightly underperforming MSCI China (+0.4%) and Hang Seng Tech (0.3%), but outperforming CSI 300 (-1%) and S&P 500 (-0.6%).

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

The stocks with the most significant increases and decreases last week were time-driven and related to AI. For example, Google was influenced by Gemini 2.0 and quantum chips, while Uber was scared off by Tesla's FSD. The two small-cap consumer stocks in the portfolio were purely speculative based on the content of the Central Economic Work Conference.

For specific stocks covered and tracked by Dolphin, the analysis of the reasons for the significant fluctuations last week can be referenced in the chart below:

5. Asset Portfolio Distribution

The Alpha Dolphin virtual portfolio holds a total of 14 stocks and equity ETFs, with a standard allocation of 3 stocks and 8 equity assets being under-allocated. The remainder is distributed in gold, U.S. Treasury bonds, and U.S. dollar cash. As of last weekend, the asset allocation and equity asset holding weights of Alpha Dolphin are as follows:

6. Key Events This Week:

This week marks the complete end of the third quarter U.S. stock earnings season, but Micron's new quarterly earnings report (ending in November) is set to begin again. Will the memory market recover, and what is the progress on HBM? This is worth paying attention to.