Category: A STOCKS

Corrections and volatility are both essential, and the key is to respond to them!

The stock market has recently experienced a significant fluctuation, which has made many investors uneasy. While such fluctuations can trigger panic, they are historically not uncommon and usually do not last long.

We discuss stock market corrections from multiple perspectives, focusing on helping investors stay calm during market volatility and avoiding irrational decisions due to short-term fluctuations:

1. The psychological impact of market corrections versus the actual situation

• Psychological effect: Violent market fluctuations often trigger emotional swings among investors, especially after a long period of market increases, sudden declines are more likely to cause panic. Last week, the Dow Jones Industrial Average fell by 1034 points in a single day. Although this drop was quite noticeable, it only accounted for 2.6% of the index’s total value. Compared to a similar drop on February 8, 2018, when the decline was 4.2%, this shows that while market fluctuations are eye-catching, their actual impact in a broader market context may not be as severe.

• Actual impact: By comparing historical data, similar significant declines are not rare in the history of the stock market. Although market declines can make investors uneasy, they do not significantly change the overall trend of the market from a long-term investment perspective.

2. The universality and normality of market corrections

• Universality: Market corrections are very common, with an average of about three corrections exceeding 5% each year over the past 25 years. This means that market corrections are a normal phenomenon in the operation of the stock market, not an anomaly. Investors should recognize the universality of this phenomenon when facing corrections, thus avoiding overreaction or panic selling.

• Normality: Although market adjustments are frequent, most of the time, they do not have a significant impact on the long-term performance of the market. In fact, historical data show that rebounds often occur after market corrections, so investors should view corrections as part of the market cycle, not a prelude to market decline.

3. The duration of market sell-offs and the speed of market recovery

• Duration of sell-offs: Analyzing historical data, market sell-offs usually do not last long. For example, since 2010, a 10% market adjustment has averaged a duration of 63 days, while corrections between 5%-10% last even shorter. Although market adjustments seem lengthy, they usually end within a few months, and the market often recovers to new highs in the following months.

• Speed of recovery: Data on the duration of past market adjustments and the time it takes for the market to recover to new highs show that the market usually recovers to new highs in less than five months, which means that patience during correction periods is rewarding for investors. By taking a long-term view, investors can avoid making irrational investment decisions due to short-term market fluctuations.

4. Investment opportunities and positive factors in market corrections

• Investment opportunities: Although market corrections bring some pressure to investors in the short term, they also provide opportunities to buy. Historically, after each market correction, the stock market has experienced a rebound. Therefore, corrections actually provide investors with the opportunity to enter the market at lower prices, helping to optimize the investment portfolio and enhance future returns.

• Positive factors: The current market fundamentals and economic background remain relatively solid. Despite volatility, this does not mean that the market will enter a long-term down cycle. The Federal Reserve may be about to enter a phase of monetary policy easing and is expected to start cutting interest rates next month, which is a positive signal for the market. At the same time, the continued growth of corporate profits is also a key factor driving the market upward. Therefore, investors should focus on these positive factors and avoid missing long-term growth opportunities due to short-term fluctuations.

5. Response to concerns about economic recession

• Economic recession possibility: Although the market has recently responded to concerns about an impending economic recession. Despite economic growth slowing down, I still believe that the possibility of a full-blown economic recession remains small. In fact, the slowdown in economic growth is a situation that the market has long anticipated, rather than a direct result of violent market fluctuations.

• Stable growth of corporate profits: The continued growth of corporate profits is seen as an important driving force for the market’s rise. Even during periods of market volatility, the growth in corporate profits still provides solid support for the market, indicating that the market fundamentals remain healthy. This also explains why rebounds usually occur after market corrections.

Through historical data and market analysis, an important message is conveyed to investors: market corrections are normal and common phenomena, and investors should not panic because of short-term fluctuations. Instead, investors should treat market corrections calmly, take advantage of the low prices during correction periods to optimize their investment portfolios, and ultimately achieve long-term returns.

The themes of weak inflation and improved economic data have complemented each other, jointly driving the recovery of the market. As inflationary pressures ease and economic data steadily improves, market sentiment has gradually recovered from previous concerns, and investors’ optimism about the future has further strengthened. This double-edged benefit has brought new momentum to the market and laid a solid foundation for future growth.

Fed Policy Path: Is the Interest Rate Cut Cycle About to Begin?

With the softening of inflation data and the improvement of economic data, market expectations for the Federal Reserve to start an interest rate cut cycle at the FOMC meeting on September 18 have gradually strengthened. Although the market speculates that the Fed might cut interest rates by 50 basis points at once, the current economic data does not indicate the need for such an aggressive monetary policy adjustment. Therefore, the Fed may choose a more cautious approach, adjusting policy through small interest rate cuts step by step.

The Fed’s Path

Perhaps one of the key questions facing the market now is whether the recent inflation and economic data will affect the Fed’s and interest rates’ trajectory. We believe that the soft inflation data, combined with the rising uncertainty in the labor market, lays the groundwork for the Fed to start cutting rates from the current 5.25% to 5.5% at the FOMC meeting on September 18. Although there is speculation that the Fed might implement a 0.50% cut, which is more than the traditional 0.25%, we believe that the recent better economic data does not mean there is an urgent need for a more substantial cut.

Remember, the Fed will hold its annual Jackson Hole Symposium from August 22 to 24, and Fed Chairman Jerome Powell plans to comment on Friday, August 23. Historically, the Fed uses this meeting to signal policy changes, and if Fed speakers anticipate a shift at the September 18 Fed meeting, we may hear their opinions. The Fed may also outline the trends they see in inflation and the labor market and whether these trends bring them closer to the start of a rate cut cycle. Although the market expects two to three rate cuts this year, any confirmation or signal from the Fed could be welcome news.

In-Depth Analysis: The Fed’s Rate Cuts Will Have a Profound Impact on Financial Markets, Especially Given the Current Market’s Optimistic Expectations for Future Economic Growth. Rate cuts will not only reduce corporate financing costs but also boost market sentiment and drive stock market gains. However, the Fed’s rate cut policy may also lead some investors to re-evaluate their asset allocation strategies, particularly for high-risk, high-return growth assets. Therefore, the future direction of the Fed’s monetary policy will be a focal point of market attention.

Market Outlook: The Breadth of Gains Continues to Expand, and a Diversified Leading Pattern May Form

Against the backdrop of slowing inflation and improving economic data, the market has seen a significant rebound recently, particularly in technology and growth sectors. With the Fed potentially starting a rate cut cycle, market leadership may expand from the previous large-cap tech stocks to more industries, such as industrials and utilities. Over the next 18 months, the diversification of market leadership may become a new theme, bringing broader opportunities for portfolios.

The market has undoubtedly welcomed the recent slowdown in inflation and better-than-expected economic data. Financial markets have rebounded from the sell-off on August 5, with the S&P 500 index rising more than 6.5%, and the 10-year Treasury yield, which briefly dipped to 3.66% during market volatility, has since climbed to around 3.9%. This indicates a recovery in confidence in the overall economy. Additionally, the VIX volatility, known as Wall Street’s fear gauge, surged to 65 on August 5, the highest level since 2020, but has since fallen back below 15, in line with the average over the past year.

The recent recovery in the stock market has once again been led by tech and growth sectors, which suffered the most significant declines during the recent correction. As the Fed’s rate cut cycle approaches and inflation continues to slow, with earnings growth expanding beyond growth and tech, we believe the broadening of market leadership may also re-emerge. If the theme of the past 18 months has been narrow leadership (large-cap tech leading the way higher), we believe the theme for the next 18 months will be diversification, with portfolios performing well in both the growth and value/cyclical parts of the market. We continue to favor large-cap and mid-cap stocks, seeing industries such as industrials and utilities continuing to catch up with tech and AI-driven sectors.

Overall, history tells us that if the Fed starts cutting rates and the economy remains stable (i.e., a “soft landing”), the market can continue to perform well in this context. While we know that market volatility is normal, especially as we enter the seasonally weak months of September and October, followed by the US election, we will use these periods of volatility and correction as opportunities, particularly as we continue to see better inflation trends and economic growth cooling but still positive.

Historical experience shows that if the Fed starts cutting rates and the economy achieves a soft landing, the market typically performs well. Investors may shift from over-concentrated tech stocks to other value and cyclical sectors. Therefore, investors should focus on diversification opportunities during future market volatility, particularly in sectors benefiting from economic recovery and inflation slowdown, such as industrials, utilities, and finance. As market uncertainty gradually subsides, a diversified investment strategy will help manage future risks and seize potential profit opportunities.

It is evident that the current optimistic sentiment in the market has a solid foundation. With the continuous improvement of inflation data, stable economic growth, and the gradual reduction of uncertainty in Fed policy, the market may enter a new recovery cycle.

“In the past 6 trading days, outperforming the Nasdaq by 10%, why the Russell 2000?”

Recently, the seven giants of the US stock market have encountered turbulence during the earnings season, causing the Nasdaq to oscillate widely at high levels, while the Russell 2000 has risen in response.
With rumors of a rate cut in September in the US, the Nasdaq index has been a bit shaky, and funds have started flowing into small and medium-sized enterprises, causing the Russell 2000 index to rise 10% more than the Nasdaq 100 index in just 6 days.

The seven giants are shaking, while the Russell 2000 is making a comeback.

Recently, the performance period of the seven tech giants in the US stock market has encountered challenges. Under the pressure of high expectations and high valuations, some companies have not released their earnings reports, leading to market volatility. The Nasdaq index has been fluctuating, while the Russell 2000 index has been moving against the trend!

In the past 6 trading days, the Russell 2000 index has outperformed the Nasdaq 100 index by nearly 10%.
Why? Influenced by expectations of interest rate cuts, investors believe that borrowing costs for small-cap stocks will decrease, making them more willing to invest in these companies.
After a prolonged rise in tech stocks, some investors have started selling stocks to take profits and are turning to invest in small-cap stocks with lower valuations.

Expectations of interest rate cuts directly impact interest rate-sensitive industries in small-cap stocks such as real estate and finance, but due to high valuations, large-cap stocks face greater volatility risks.

The performance period of the seven tech giants in the US stock market is turbulent.
Why? Some tech giants’ actual financial performance has not met market expectations, leading investors to sell off in anticipation of poor results. Macro-economic factors such as inflation, interest rate changes, and global supply chain issues have affected the profit-making ability and market confidence of large companies.
Some tech companies are also facing pressure from governments and regulatory agencies, especially with the possibility of new policies under the Trump administration, causing some concerns about their future development.

The Nasdaq index is highly dependent on tech stocks, as the performance fluctuations of these giant companies directly impact the index’s performance.

The Rise of the Russell 2000 Index

Investors are turning to small-cap companies to diversify risks. This trend has benefited the Russell 2000 Index.
With the recovery of the U.S. economy, many small-cap companies are benefiting from increased local market demand.
Coupled with rate cuts and loose monetary policies, small-cap companies find it easier to obtain financing to expand their businesses. The Russell 2000 Index represents small-cap stocks, which are sensitive to interest rates.

Given the high volatility of tech stocks, investors may consider investing in small-cap companies to diversify risks appropriately;
Keep a close eye on macroeconomic indicators and policy changes to understand their potential impact on companies of different sizes;
Maintain patience, focus on company fundamentals, and long-term potential.

Introduction to the Russell 2000 Index

The Russell 2000 Index is an important stock market index that measures small-cap companies in the United States. It is compiled and maintained by Russell Investments.

It is a subset of the Russell 3000 Index, which includes the largest 3000 companies in the U.S., focusing on the smaller market capitalization of 2000 companies.
Annually in June, the index constituents are re-adjusted based on market capitalization data. Companies in the Russell 3000 Index are ranked by market capitalization, with the top 1000 companies forming the Russell 1000 Index, and the remaining 2000 companies forming the Russell 2000 Index. The constituents are weighted by free float market capitalization, which refers to the portion of a company’s market capitalization that is publicly tradable.
A comprehensive index adjustment is conducted every June, and temporary adjustments are made when significant events occur in companies, such as mergers or bankruptcies.

Core Components

The Russell 2000 Index comprises small-cap companies from various industries, covering a wide range of economic sectors.
Firstly, the financial sector, including banks, insurance companies, and other financial service providers.
Secondly, the healthcare sector, including biotechnology, pharmaceutical, and medical device companies.
Additionally, the industrial sector, including manufacturing and construction companies.
It also includes crucial information technology companies, such as software firms and hardware manufacturers.
Furthermore, it involves consumer goods, including retail and food service providers.

The performance of the Russell 2000 Index often aligns with the overall market trends, but due to the higher risks and growth potential of small-cap companies, its volatility is also higher.

Rate cut review
Small-cap companies will benefit from lower financing costs and looser monetary policy, which will have a positive impact on the Russell 2000 Index.
During the bursting of the dot-com bubble and the subsequent economic downturn in 2001, the Federal Reserve cut interest rates multiple times. The Russell 2000 Index experienced significant volatility during this period, but overall performance lagged behind the large-cap stock indices.
During the 2007-2008 financial crisis, the Federal Reserve made substantial rate cuts. Initially, the Russell 2000 Index experienced a sharp decline, but as policy effects and market confidence recovered, small-cap companies rebounded first, outperforming large-cap companies.
During the global economic slowdown and trade tensions in 2019, the Federal Reserve cut interest rates. The Russell 2000 Index showed strong performance, indicating the sensitivity of small-cap companies to policy changes.

How to invest in the Russell 2000 Index?

Russell 2000 Index Fund
Open an account through a large online brokerage platform (such as Fidelity, Charles Schwab, Vanguard, etc.), search and purchase.
Purchase directly from the options provided by fund companies (Vanguard and iShares).

Russell 2000 ETF
iShares Russell 2000 ETF (IWM): This is one of the most popular Russell 2000 ETFs, offering direct tracking of the performance of the Russell 2000 Index.
Vanguard Russell 2000 ETF (VTWO): An ETF provided by Vanguard, with lower fees and widely favored by investors.
SPDR Russell 2000 ETF (TWOK): Provided by State Street Global Advisors, it is also a common choice.
How to purchase? Choose a brokerage platform (E*TRADE, Robinhood, TDAmeritrade, etc.), open an account, search for the ETF code, and proceed with the purchase.

The Russell 2000 Index includes 2000 small-cap companies, which can be searched for on the Russell official website or financial websites such as Yahoo Finance, Google Finance, or Bloomberg.

Investors can achieve their investment goals through diversification, long-term holding, and dollar-cost averaging strategies.

In China, investors can invest in the Russell 2000 Index through QDII (Qualified Domestic Institutional Investor) funds, but currently there are no QDII funds publicly approved for this purpose.

Disclaimer: The content of this article is for reference only and does not constitute investment advice. Investment involves risks, so caution is advised when entering the market.

Recently, the US stock market has entered the election season. Since the first debate, the US stock market has officially entered the election trading period. The different views of the Republican and Democratic parties will have different impacts on different industries. With occasional withdrawal dramas, the election is full of excitement. Here, we will not focus on the election, but on the interest rate cut cycle.

Anyway, the market will switch to interest rate cutting assets in the third quarter.

The interest rate cut cycle is approaching, it’s time to focus on long-term assets. What are long-term assets?

Long term assets refer to assets that generate cash flows or returns over a longer period of time. Their value and return are usually influenced by future interest rate changes and market conditions. The characteristics of these assets typically include longer investment terms, lower liquidity, and higher interest rate and time risks for investors. Common types of long-term assets include:

1. Long term bonds: such as government bonds and corporate bonds, typically have a longer maturity period, up to 10 years or even longer.
2. Real estate: commercial and residential real estate, especially real estate investments that have been held for a long time to generate rental income and capital appreciation, such as real estate REITs.
3. Infrastructure investment: including roads, bridges, power facilities, etc., which usually take many years to build and start generating returns.
4. Private equity investment: Investing in equity of non listed companies, which usually takes a long time to exit and obtain returns.
5. Equity in technology and biotechnology companies: These companies may take a long time to achieve technological breakthroughs and gain market recognition, resulting in returns. A typical example is many companies in the cloud computing SaaS industry, whose valuation relies on discounting expected cash flows for many years in the future due to their unique business model. They are extremely sensitive to the discount rate, which is also the interest rate, making them a typical representative of long-term assets. There are also biotechnology companies that rely on their potential successful R&D pipelines in the future and are also sensitive to interest rates.

Investors in long-term assets typically require a longer investment horizon and the ability to withstand risks, as these assets may experience significant price fluctuations in the short term but have the potential to generate higher returns in the long term. Especially in low interest rate environments, long-term assets are favored due to their potential high returns.

Long term assets, when interest rates rise, their value may be negatively affected. During the 2022-2023 interest rate hike cycle, long-term assets have suffered a brutal valuation kill, with the core being the valuation decline caused by the rise in discounted interest rates, as well as the slowdown in performance due to high inflation, ultimately leading to the tragedy of Davis’ double kill, typical companies such as Zoom, Peloton, and Roku.

A turning point is slowly emerging, with the core being the sustained weak economic data in the United States recently, which has officially begun the cycle of interest rate cuts.

With weak economic data, the market has doubts about the sustainability of the Federal Reserve’s “higher for longer” policy, and expects the first interest rate cut in September, with a 50 basis point cut within the year. Last week’s PCE data was also lower than expected, with a core PCE of 0.2% month on month and an overall 2.6%. The speed of inflation decline was confirmed against the backdrop of weak consumption.

The slowdown in economic growth and signs of weakness in consumption and labor markets suggest that the Federal Reserve may have to adjust its high interest rate policy in the near future to avoid further damage to the economy. As core inflation indicators may continue to decline, the likelihood of the Federal Reserve cutting interest rates twice this year is increasing.According to the latest CME interest rate cut expectations, there will be a first rate cut in September and a second rate cut in December. The annual rate cut will be 50 basis points, and the market will officially enter the rate cut cycle trading in the third quarter.

According to the latest CME rate cut expectations, the Federal Reserve will conduct its first rate cut in September 2024 and its second rate cut in December, with a full year rate cut of 50 basis points. This means that after entering the third quarter, the market will officially begin the interest rate cut cycle trading. In this context, focusing on long-term assets has become an important investment strategy:

What profound impact does the interest rate cut cycle have on the market? Next, we will expand on asset categories:

Bond market:

• Long term bond benefits: Interest rate cuts typically lead to a decrease in bond yields and an increase in bond prices, especially for long-term bonds. Investors tend to purchase long-term bonds during interest rate cut cycles to lock in higher yields. Therefore, long-term treasury bond and highly rated corporate bonds may become beneficiaries, and focus on TLT/TMF

• Interest rate sensitivity: Long term bonds are more sensitive to changes in interest rates, and the expectation of interest rate cuts will lead to an increase in the prices of these bonds, resulting in capital gains.

stock market:

• Growth stocks: Interest rate cuts usually benefit high growth stocks, especially those that rely on financing to expand their business, such as technology stocks. The lower interest rates have lowered the financing costs of these companies and increased their valuations.

• Dividend stocks: High dividend stocks may also benefit from interest rate cuts, as lower bond yields make investors more inclined to seek high dividend stocks with stable cash flow.

Real estate market:

• Rising housing prices: Cutting interest rates will lower mortgage rates, thereby increasing demand in the real estate market and pushing up housing prices. Real estate investment trusts (REITs) may perform well.

• Reduced financing costs: Lower financing costs help real estate developers and homebuyers, further driving the development of the real estate market.

Commodity market:

• Precious metals: Interest rate cuts typically lead to a weakening of the US dollar, which in turn drives up prices of commodities denominated in US dollars, such as gold and silver. Investors can consider increasing their allocation of these precious metals to hedge against inflation risks and currency depreciation.

Investment Strategy Suggestions

• Increase in long-term bonds: In the cycle of interest rate reduction, long-term bonds (such as treasury bond with a maturity of more than 10 years and highly rated corporate bonds) will benefit from the price rise brought about by the decline in interest rates.
• Pay attention to high growth stocks and high dividend stocks: Technology stocks and high dividend stocks usually perform well during interest rate cut cycles. Investors can increase their holdings of high-quality stocks in these sectors.
• Investing in real estate and REITs: As interest rate cuts will lower mortgage rates, the real estate market may perform strongly, and investors can benefit from investing in real estate and real estate investment trusts.
• Configuring precious metals: Increase the allocation of gold and silver to hedge against potential inflation risks and currency depreciation.

risk management

Although interest rate cuts usually have a positive impact on the market, investors still need to be aware of the following risks:

1. Economic uncertainty: If interest rate cuts fail to effectively boost the economy, the market may experience volatility, and investors need to remain vigilant.
2. Inflation pressure: Cutting interest rates may exacerbate inflation pressure, especially in a tight supply chain situation. Investors need to closely monitor inflation data and adjust their investment portfolios in a timely manner.
3. Policy changes: The Federal Reserve’s policy changes may exceed market expectations, and investors need to pay attention to policy meetings and related statements to adjust their strategies in a timely manner.

In the third quarter’s interest rate cut cycle trading, long-term assets will be the main beneficiaries due to their sensitivity to changes in interest rates. Investors should pay attention to long-term bonds, high growth stocks, high dividend stocks, real estate, and precious metals, while closely monitoring economic and policy developments to flexibly respond to market changes.

For ETFs, the following ETFs can be considered:

In the interest rate cut cycle, industries that usually benefit include technology, real estate, consumer goods, utilities, and finance. Here are 10-20 ETF recommendations that may perform well in the interest rate cut cycle, along with an analysis of the reasons:

technology industry

1. Invesco QQQ Trust (QQQ)
   • Tracking the Nasdaq 100 index, which includes numerous tech giants. Interest rate cuts typically lower borrowing costs and promote investment and innovation in technology companies.
2. Technology Select Sector SPDR Fund (XLK)
   • Including major technology companies such as Apple, Microsoft, etc. The technology industry benefits from lower capital costs and increased consumer demand.

real estate

1. Vanguard Real Estate ETF (VNQ)
   • Invest in Real Estate Investment Trusts (REITs) in the United States. The interest rate cut has reduced borrowing costs and increased activity and yields in the real estate market.
2. Schwab U.S. REIT ETF (SCHH)
   • Tracking the Dow Jones US Select Real Estate Index also benefits from the low interest rate environment.

consumer goods

1. Consumer Discretionary Select Sector SPDR Fund (XLY)
   • Including consumer goods companies such as Amazon and Tesla. The interest rate cut has increased consumers’ purchasing power and driven consumption growth.
2. Vanguard Consumer Discretionary ETF (VCR)
   • Investing in American consumer goods companies benefits from increased consumer spending.

public utility

1. Utilities Select Sector SPDR Fund (XLU)
   • Including major utility companies. The interest rate cut has reduced the financing costs of public utility companies and increased stable dividend returns.
2. Vanguard Utilities ETF (VPU)
   • Invest in American utility companies and enjoy the financing cost advantage brought by lower interest rates.

finance

1. Financial Select Sector SPDR Fund (XLF)
   • Including banks, insurance companies, etc. Although the banking industry may face net interest margin pressure in the early stages of interest rate cuts, overall demand for financial services is on the rise.
2. iShares U.S. Financial Services ETF (IYG)
   • Tracking US financial service companies, benefiting from the long-term increase in economic activity and consumer borrowing demand.

Communications Services

1. Communication Services Select Sector SPDR Fund (XLC)
   • Including communication service companies such as Facebook and Google, benefiting from increased advertising spending and consumer demand.
2. Vanguard Communication Services ETF (VOX)
   • Invest in American communication service companies and enjoy the growth in consumer spending brought about by interest rate cuts.

healthcare

1. Health Care Select Sector SPDR Fund (XLV)
   • Including healthcare companies such as Johnson&Johnson and Pfizer. The interest rate cut has increased consumer spending and increased demand for medical services and products.
2. iShares U.S. Healthcare ETF (IYH)
   • Tracking US healthcare companies, benefiting from lower capital costs and increased consumer spending.

industry

1. Industrial Select Sector SPDR Fund (XLI)
   • Including industrial companies such as Boeing and 3M. The interest rate cut has reduced financing costs and promoted investment in infrastructure and manufacturing.
2. Vanguard Industrials ETF (VIS)
   • Invest in American industrial companies and enjoy the opportunities brought by economic growth and increased investment.

material

1. Materials Select Sector SPDR Fund (XLB)
   • Including material companies such as DuPont and Dow. The interest rate cut has promoted the construction and manufacturing industries, increasing demand for basic materials.
2. iShares U.S. Basic Materials ETF (IYM)
   • Tracking American basic materials companies, benefiting from increased economic activity.

Other recommendations

1. SPDR S&P 500 ETF Trust (SPY)
   • Widely invest in S&P 500 index companies and enjoy the growth brought by the overall economic recovery.
2. Vanguard Total Stock Market ETF (VTI)
   • Invest in the entire US stock market and enjoy the broad market returns brought by interest rate cuts.

The interest rate cut cycle usually reduces borrowing costs, promotes consumption and investment, and benefits industries such as technology, real estate, consumer goods, utilities, and finance. These industries typically perform well due to reduced financing costs and increased demand. The recommended ETFs mentioned above cover these beneficiary industries and provide diversified investment options. The entire text is complete.

The Journey of Realizing Large Models: The Turbulence and Dawn of the B-end

Since the emergence of ChatGPT 3, OpenAI has not only led the wave of intelligent technology, but also outlined the blueprint for annualized revenue to nearly $4 billion in just over a year. Behind this is a deep exploration of its diversified income structure and business model. Let’s dissect the story behind this in detail and delve into the hardships and future prospects of B-end monetization.

1、 OpenAI Revenue Map Unveiled

OpenAI’s revenue tower is firmly built on four cornerstones: ChatGPT Plus subscription, ChatGPT Enterprise, ChatGPT Team, and API interface services. These four pillars together support OpenAI’s brilliant achievement of annual recurring revenue (ARR) of up to $3.4 billion.

ChatGPT Plus subscription: undoubtedly OpenAI’s cash cow, contributing $1.9 billion and accounting for half of the total revenue. The monthly subscription fee of $20 for 7.7 million global users provides OpenAI with stable and substantial cash flow.

ChatGPT Enterprise: A high-value service aimed at enterprise users, despite facing strict tests of data security and intellectual property, it has attracted approximately 1.2 million enterprise users at a fee of $50 per month, contributing $744 million in revenue and demonstrating the potential and challenges of the B2B market.

ChatGPT Team: Providing thoughtful services for small and medium-sized enterprises and teams, with a monthly affordable price of $25, it has won the favor of about 980000 users and added $290 million in revenue to OpenAI.

API interface services have opened a convenient door for developers and enterprises to directly access AI models. Although the revenue share is only 15%, the $510 million revenue is still not to be underestimated, especially the close cooperation with Microsoft Azure, which has brought additional annual revenue sharing to OpenAI.

2、 B-end monetization: a difficult journey

Compared to the smooth sailing of the C-end, the path to monetization on the B-end appears particularly bumpy. The nine major challenges of data security and privacy, intellectual property compliance, highly customized requirements, complex decision-making processes, high customer expectations, fierce market competition, unequal cost and benefit, technical barriers and training costs, as well as continuous technical support and maintenance, are like nine mountains that span the path of B-end monetization.

The ultimate pursuit of data security and privacy by enterprises has forced AI service providers to invest huge costs to meet compliance requirements; The issue of ownership of intellectual property rights makes companies even more cautious when choosing services. In addition, the diversification and high degree of customization of enterprise needs require service providers to spend more time and resources on customized development of solutions. This series of challenges undoubtedly increases the difficulty and uncertainty of B-end monetization.

3、 The dawn of B-end monetization is beginning to emerge

However, despite the numerous challenges, the dawn of B-end monetization has quietly emerged. With the improvement of technological maturity, the increase of successful cases, the improvement of the ecosystem, the strengthening of policy support, the decrease of costs, and the surge in demand for digital transformation of enterprises, the B2B market is expected to usher in a golden period of accelerated development.

The continuous advancement and maturity of AI technology will gradually eliminate the concerns and worries of enterprises when adopting new technologies; The emergence of more and more successful cases and benchmark companies will provide valuable references and confidence for other enterprises. In addition, policy support and standard specifications from the government and industry organizations will also safeguard the application of AI technology in enterprises. The combined effect of these positive factors will inject strong momentum and vitality into B-end monetization.

4、 Accenture Perspective: Future Prospects of Generative AI

As a leading global consulting and software outsourcing company, Accenture’s latest quarterly financial report reveals the current status and future trends of generative AI in enterprise applications. At present, generative AI is still in the experimental and pilot stage, but Accenture expects it to gradually expand to larger scale production environments in the next 2-3 years. This prediction is not only based on the objective facts of technological progress and cost reduction, but also on the demonstration effect of successful cases and industry benchmarks, as well as the driving force of policies and standards.

Therefore, for enterprises, it is particularly important to actively explore and verify the potential of generative AI, and to prepare for technology and strategic layout. Only in this way can we seize opportunities, ride the waves, and achieve greater commercial and social value in the future wave of AI.

In summary, although the road to realizing large models is full of challenges and hardships, as long as we remain firm in our beliefs, move forward courageously, constantly innovate and optimize our service products, we will definitely usher in the glorious dawn of B-end monetization.

“Equal-weight S&P 500 ETF, a stable choice during the oscillation period of the seven giants.”

Recently, Wall Street has started to favor the use of equal-weighted indices such as the S&P 500, which is different from the traditional S&P 500 index.

The traditional S&P 500 index is market-cap weighted, so a few large-cap stocks have a significant weighting, while the equal-weighted S&P 500 index assigns the same weight to each stock, with each having a 0.2% allocation.”

The equal-weighted S&P 500 index currently holds an advantage.

Large-cap tech stocks have been influencing the fluctuations of the S&P 500 index, making the equal-weighted S&P 500 index an important gauge for measuring the performance of other markets.

According to a report by Janus Henderson, the expected P/E ratio of the market-cap weighted S&P 500 index is 21 times, while the equal-weighted version has an expected P/E ratio of 16 times, indicating the significant weight of large-cap tech stocks in the benchmark index.

Bespoke Investment Group also pointed out that the equal-weighted S&P 500 index has undergone a long adjustment period and may show outstanding performance again in the future.

Based on Factiva data, discussions about this index exceeded 6,000 times last year, which is half more than the 3,000 times the previous year, and Google search trends also show that the index’s online search volume has increased by nearly 4 times.

Fund Flows and Market Performance

The Invesco S&P 500 Equal Weight ETF has attracted a large amount of fund inflows. In the past 12 months, nearly $11 billion flowed in, expanding its size to over $54 billion.

In contrast, the SPDR S&P 500 ETF, which tracks the market-cap weighted S&P 500 index, attracted around $17 billion, reaching a size of $550 billion.John Frank, head of Invesco’s ETF experts, stated that the discussion frequency of the equal-weighted S&P 500 index ETF has never been this high before.

So far this year, while the equal-weighted S&P 500 index has a return of 7.6%, the traditional S&P 500 index has a return of over 18%.

However, besides the seven tech giants, the other 493 stocks in the S&P 500 index may perform better in the second half of the year.

Investors are starting to question whether the money invested in artificial intelligence can bring the expected returns, which may indicate that some overvaluation of the tech giants is overly optimistic.

Interest Rates and Industry Outlook

The Federal Reserve may cut interest rates in the second half of the year, which would benefit smaller stocks in the equal-weighted index.
These stocks have less cash, and access to the bond market is a priority, so lower interest rates can bring benefits.
Although the equal-weighted index is not considered a small-cap stock index, about one-third of it is invested in the 180 largest large-cap stocks in the market, while this proportion exceeds 80% in the S&P weighted index.
In the equal-weighted index, there are more industries such as utilities and real estate, accounting for approximately 13%.
In contrast, the S&P only has 5%. If a rate cut can stimulate the real estate market, these stocks may rise.
Furthermore, real estate stocks yield 3.4%, while utility stocks yield 3.1%. They may become more attractive than bonds during a rate cut.

The difference between the S&P 500 and the S&P 500 Equal Weight Index

The S&P 500 Index is market-cap weighted, with companies with larger market capitalization having a higher weighting. The top seven giants account for over 30% of the index.
On the other hand, the S&P 500 Equal Weight Index assigns an equal weight of 0.2% to each stock, significantly reducing the influence of large tech companies, with the top seven giants collectively accounting for less than 2%.

The S&P 500 Index has a high proportion of technology stocks, with other sectors (utilities and real estate) having smaller weightings, making large-cap stocks have a greater impact on the overall index.
In contrast, the S&P 500 Equal Weight Index has a balanced sector distribution, with sectors like utilities and real estate accounting for approximately 13%, making it more representative.

Due to the significant weight of large tech stocks, the S&P 500 Index has a forward P/E ratio of 21 times.
The S&P 500 Equal Weight Index has a forward P/E ratio of around 16 times, indicating lower dependence on large tech stocks and a relatively reasonable overall valuation.

When tech stocks perform strongly, the S&P 500 Index usually outperforms the Equal Weight Index, with a return of over 18% so far this year.
On the other hand, the S&P 500 Equal Weight Index is less affected by tech stocks and better reflects the overall market performance, with a return of 7.6% so far this year.

Due to the concentration of weight on a few large companies, the S&P 500 Index experiences increased volatility when the stock prices of these companies fluctuate significantly.
Conversely, the Equal Weight Index assigns the same weight to each stock, resulting in less impact from the price fluctuations of individual companies and lower overall volatility.

The S&P 500 Index has long been considered the “stock market representative” by investors, attracting significant funds. The SPDR ETF tracking the S&P 500 Index has approximately $550 billion in assets under management.
In recent years, the S&P 500 Equal Weight Index has gained attention from investors, especially in the context of tech dominance. The Invesco S&P 500 Equal Weight ETF (RSP) has seen net inflows of nearly $11 billion in the past 12 months, expanding its size to over $54 billion.

If the technology sector continues to perform strongly, the market-cap weighted S&P 500 index will continue to benefit. However, if the high valuation of technology stocks is questioned, their performance may be affected.
With the possibility of a rate cut by the Federal Reserve in the second half of the year, it would be favorable for smaller stocks in equal-weighted indices.
Therefore, if the seven tech giants fluctuate, the equal-weighted indices may relatively benefit.

What are the ETFs that track the equal-weighted S&P 500?

Invesco S&P 500 Equal Weight ETF (Invesco S&P 500 Equal Weight ETF, RSP): With assets over $54 billion (as of the latest data), an expense ratio of 0.20%, this ETF primarily tracks the S&P 500 Equal Weight Index, assigning equal weight to each stock to ensure the index performance is not dependent on a few large companies.

Invesco S&P MidCap 400 Equal Weight ETF (Invesco S&P SmallCap 600 Equal Weight ETF, EWSC): Although smaller in size, this ETF focuses on the mid-cap market with an expense ratio of 0.40%. It tracks the S&P MidCap 400 Equal Weight Index, evenly distributing the weight of mid-cap stocks.

Invesco S&P SmallCap 600 Equal Weight ETF (First Trust S&P 500 Equal Weight Technology ETF, RYT): Also smaller in size, this ETF concentrates on the small-cap market with an expense ratio of 0.40%. It tracks the S&P SmallCap 600 Equal Weight Index, balancing the weight of small-cap stocks.

First Trust S&P 500 Equal Weight Technology ETF (First Trust S&P 500 Equal Weight Technology ETF, RYT): With a moderate fund size and an expense ratio of 0.40%, this ETF primarily focuses on the equal-weight distribution of S&P 500 technology stocks, offering balanced investment opportunities within the technology sector.

First Trust S&P 500 Equal Weight Consumer Staples ETF (First Trust S&P 500 Equal Weight Consumer Staples ETF, RHS): With a moderate fund size and an expense ratio of 0.40%, this ETF primarily concentrates on the equal-weight distribution of S&P 500 consumer staples stocks, providing balanced investment opportunities within the consumer staples industry.

Disclaimer: The content of this article is for reference only and does not constitute investment advice. Investment involves risks, so caution is advised when entering the market.

“The allure of AI giants is fading, suggesting a shift towards an all-weather strategy.”

Bank of America (BofA) advises investors to shift their focus from artificial intelligence (AI) investments to an all-weather investment strategy. This recommendation comes against the backdrop of soaring investment interest in the AI sector, yet there remains skepticism about whether the returns can cover the high costs. The all-weather investment strategy emphasizes maintaining a robust portfolio under various market conditions to ensure stable long-term returns.

The stocks known as the “Seven Titans”—Alphabet, Amazon, Nvidia, Netflix, Tesla, Apple, and Microsoft—have outperformed the S&P 500 Index. These companies, with their leadership in their respective fields, have achieved significant growth in market value, which has, to some extent, driven the rise in tech stocks overall.

Profit growth expectations for AI-related ETFs are gradually decreasing and approaching the forecast levels of the S&P 500 Index. This indicates that the market is adopting a more cautious attitude towards the future returns of AI investments, which could also create opportunities for other stocks in the S&P 500 to benefit from the relative downturn of AI stocks.

01

—

What is the All-Weather Investment Strategy?

The All-Weather Investment Strategy is an investment approach designed to cope with different economic environments and market conditions. Its core objective is to achieve stable long-term returns by constructing a diversified portfolio, reducing dependence on a single market or economic condition. Here is an in-depth introduction to the All-Weather Investment Strategy:

1. Strategy Background and Objectives

The All-Weather Investment Strategy was proposed by renowned investor Ray Dalio and his firm, Bridgewater Associates. The goal of this strategy is to maintain a stable performance of the investment portfolio across different economic cycles and market conditions, including various scenarios such as economic growth, recession, inflation, and deflation.

2. Portfolio Construction

An all-weather investment portfolio typically includes the following key asset classes to achieve diversification and risk dispersion:

• Equities: Representing the potential for economic growth and corporate profit increases. Includes large-cap blue-chip stocks and growth stocks.
• Bonds: Providing stable fixed income to counter the volatility of the stock market. Includes long-term and short-term government bonds, corporate bonds, etc.
• Commodities: Such as gold, crude oil, etc., which can provide protection during inflationary periods.
• Cash and Cash Equivalents: Providing liquidity and stability during market uncertainty.

3. Risk Management

The All-Weather Investment Strategy focuses on managing risk through asset allocation. Different asset classes perform differently in various economic environments, and by appropriately allocating these assets, the overall volatility and risk of the investment portfolio can be reduced. For example:

• During economic growth: Equities perform well, and rising bond yields may negatively impact bond prices.
• During economic recession: Bonds usually perform well, while equities may decline.
• During inflation: Commodities (like gold) may benefit, and bond yields may come under pressure.
• During deflation: Bonds may perform well, while commodities may not fare as well.

4. Asset Allocation Principles

The All-Weather Investment Strategy typically follows these asset allocation principles:

• Diversification: Investing in a variety of asset classes to reduce the impact of fluctuations in a single asset class on the overall portfolio.
• Dynamic Adjustment: Adjusting asset allocation dynamically according to changes in market environments and economic conditions to optimize risk and return.
• Long-term Perspective: The strategy usually focuses on long-term investments, not short-term profit fluctuations, aiming for long-term stable growth.

5. Advantages and Limitations

Advantages:

• Risk Diversification: Diversified investments reduce the risk of a single asset class or market.
• Stability: Stable performance across different economic cycles, reducing portfolio volatility.
• Flexibility: Adaptable to various economic environments and market conditions.

Limitations:

• Return Limitations: To reduce risk, the All-Weather Investment Strategy may not achieve maximum returns when the market is strongly rising.
• Management Complexity: Requires regular assessment and adjustment of asset allocation to ensure consistency with economic environments and market conditions.

Overall, the All-Weather Investment Strategy is suitable for investors seeking long-term stable returns and risk diversification. It emphasizes diversification and flexible adjustments to cope with various market environments and economic cycles.

02

—

Why does BofA suggest focusing on the All-Weather Strategy?

BofA suggests turning to the All-Weather Investment Strategy in the current market environment, mainly based on the following considerations:

1. AI Investment Return Risks

BofA points out that while investments in the field of artificial intelligence (AI) are very popular, there is still uncertainty about whether the returns can cover the high investment costs. As profit growth expectations for AI-related stocks decrease, the market’s optimism for these investments wanes, suggesting the adoption of an all-weather investment strategy to cope with potential market volatility and risks.

2. Market Environment Uncertainty

The current economic and market environment has a certain level of uncertainty, including fluctuations in economic growth, changes in inflationary pressures, and political and economic risks in the global market. The All-Weather Investment Strategy, through diversified asset allocation, can maintain robust performance in various economic environments, helping investors cope with these uncertainties.

3. Performance of the “Seven Titans” Stocks

BofA notes that the “Seven Titans” in tech stocks—Alphabet, Amazon, Nvidia, Netflix, Tesla, Apple, and Microsoft—although outperforming the S&P 500 Index, concentrated investment in these stocks may bring higher risks. As the market value of these stocks has grown significantly in the past few years, over-reliance by the market could lead to potential bubble risks. Therefore, BofA suggests shifting focus to a more balanced and diversified all-weather investment strategy to reduce the risks of a single asset class.

4. Declining Profit Growth Expectations

AI-related ETFs’ profit growth expectations are gradually approaching the S&P 500’s level, indicating that the market’s high-growth expectations for AI are returning to reality. This could make investment strategies centered on AI no longer have a clear advantage. Shifting to an all-weather investment strategy can help investors achieve long-term stable returns in an environment of declining profit growth expectations.

5. Diversification Advantages of Asset Allocation

The All-Weather Investment Strategy emphasizes the diversification of asset allocation, including equities, bonds, commodities, and cash. This diversified asset allocation can effectively disperse risks and enhance the stability of the investment portfolio in different market environments. BofA believes that the current market uncertainty makes this strategy more advantageous than investment strategies focused on specific industries or asset classes.

Through the above factors, BofA believes that the All-Weather Investment Strategy can help investors achieve better risk management and return stability in the current complex market environment.

BofA recommends some stocks to watch, including:

• O’Reilly Automotive (auto parts retailer)
• NVR (residential construction company)
• Progressive (insurance company)
• KKR (investment company)
• Arch Capital Group (insurance company)
• Costco Wholesale (retail giant)
• Vertex Pharmaceuticals (pharmaceutical company)
• HCA Healthcare (healthcare provider)
• Analog Devices (semiconductor company)
• Amphenol (electronic connector manufacturer)
• Vulcan Materials (building materials supplier)

BofA has a bearish outlook on the technology, consumer goods (including both consumer and staple goods), and healthcare sectors. In contrast, they believe that companies in the materials and industrial sectors may benefit from the Federal Reserve’s interest rate cuts. This is because lower interest rates usually stimulate infrastructure construction and other industrial activities, thereby driving profit growth for related companies.

In summary, although tech stocks and AI investments continue to attract attention, BofA believes that shifting to a more diversified investment strategy that can cope with various market conditions is more robust in the current market environment. These investment strategies include focusing on materials, industrials, and other potential stocks.

The Federal Reserve is about to embark on a “non-typical rate cut”!

This rate cut is merely to ease tightening rather than to address a crisis!

The Jackson Hole conference has always been an important venue for global monetary policymakers. Although the conference itself does not make policy decisions, it usually sets the tone for the upcoming policy meetings. This year’s conference has sparked widespread discussion in the market about the Federal Reserve’s rate cut, especially Chairman Powell’s speech, which provided some key insights into the impending policy changes.

Here are my three main points:

1. The Wait is Over, Officially Starting a New Round of Rate Cuts in September

The official start of rate cuts in September: For over a year, the market has been focused on the timetable for rate cuts. According to Powell’s remarks, the Federal Reserve is likely to begin cutting rates in September this year. Although inflation has not been fully controlled, core CPI has fallen for four consecutive months, showing significant progress. Moreover, with signs of a weakening job market, the Federal Reserve’s focus will be more balanced to support the labor market and the economy.

It’s not just about inflation anymore: Over the past two years, the Federal Reserve’s policy has focused on reducing inflation. However, with changes in inflation and employment trends and a weakening economy, the Federal Reserve’s attention will gradually shift to supporting the economy and the job market to avoid a significant slowdown.

2. This is Not a Typical Rate Cut Cycle, Merely to Ease Tightening Rather than to Address a Crisis

A different starting point: Traditionally, the Federal Reserve initiates rate cuts during economic recessions or financial crises. However, the current economic conditions are relatively stable, and the rate cut is more like easing tightening policies rather than stimulating a weak economy. Therefore, this rate cut cycle is expected to unfold in a smaller and gradual manner, with each rate cut of 25 basis points, adjusting monetary policy to a neutral stance step by step.

Non-linear rate cut path: Powell emphasized that future policies will be highly data-dependent, which means the rate cut path may not be a straight line but will be adjusted based on inflation and economic data, possibly alternating between rate cuts and pauses.

Not dramatic: We expect this rate cut cycle to start gradually and continue. Unless there are sharp and unexpected changes in the inflation or unemployment path, we believe the Federal Reserve will gradually reduce the policy rate by 25 basis points (0.25%). The last rate cut was in March 2020, when the Federal Reserve made emergency cuts of 50 and 100 basis points to address the impact of the COVID-19 shutdown. The policy easing cycle that began in 2007 started with significant rate cuts (0.50%), including multiple substantial cuts as we dealt with the collapse of the housing market and the global financial crisis. Similarly, the easing cycle following the tech bubble burst and the 2001 9/11 events included multiple 50 basis point cuts. We believe that the Federal Reserve does not need to take significant measures at this stage, and in the absence of any particularly weak upcoming employment reports, we believe a series of 25 basis point rate cuts may be adopted, as the Federal Reserve seeks a neutral stance on its policy rates.

Not predetermined: One point emphasized from Chairman Powell’s speech last week is that the Federal Reserve will be highly data-dependent when making the upcoming policy changes. Our interpretation is that the Federal Reserve does not view this rate cut cycle as a path from now to a future destination but will assess the upcoming inflation and economic data and make corresponding adjustments. We suspect this means the rate cut path may be inconsistent, with rate cuts and pauses interspersed in meetings this year and next.

Compared to previous crisis-driven economic recessions, we expect the scale of rate cuts to be smaller and more gradual.

3. Rate Cuts are Usually Beneficial to the Market, and This Time May Not Be an Exception

Market rebound: The market has already partially reacted to the upcoming rate cuts this year, with significant declines in short-term and long-term yields, and the stock market has risen nearly 40% since last October. Despite this, the actual start of future rate cuts may still provide further impetus for the market, especially if the Federal Reserve can achieve an economic soft landing.

Market volatility: Although rate cuts are usually beneficial to the market, historical data show that the market tends to be more volatile at the beginning of rate cuts. Uncertainty may increase market volatility in the coming months, including factors such as weak economic data, the U.S. presidential election, and geopolitical risks.

Historical performance: Looking back, the Federal Reserve’s rate cuts have often led to positive market performance in the next one to two years, especially when not accompanied by a recession, such as in 1987, 1995, and 1998. This also supports the view that the market will continue to perform well in the context of future economic expansion.

The historical and current starting points deserve our positive outlook: Rate cuts are not a panacea, but we do believe that reducing restrictive policies is good news. Although this will not reintroduce 3% mortgages or provide a lot of monetary stimulus, it is a step to alleviate the burden of borrowing costs for consumers and businesses. Lower interest rates can also support stock market valuations and bond market returns. We believe that the broader performance of the stock market within one and two years after the start of rate cuts largely proves this point, as shown in the table below. Recognizing the weakness caused by the bursting of the internet bubble and the 9/11 events and the global financial crisis, which far exceeded the start of the rate cut cycle, we believe that in the latter period, history is on the side of investors.

Looking at periods such as 1987, 1995, and 1998, when rate cuts were not accompanied by an ensuing economic recession, the returns in the following one to two years were particularly strong. As we have pointed out, the possibility of a recession cannot be completely ruled out, but we believe that the economic expansion will continue. We believe that the Federal Reserve’s decision to start rate cuts based on current employment, consumer spending, and overall GDP growth supports this outcome and also supports a generally positive view of future financial markets. The broader market performance after the first rate cut is often positive.

In summary, although the path of future rate cuts is uncertain, we believe that more accommodative monetary policy will support the market in the next one to two years, while being vigilant about short-term market volatility and potential risks. We should be prepared for the rate cut cycle!

Despite a slight drop in the unemployment rate, the latest labor market report shows a broader weakening trend. In August, the unemployment rate fell from 4.3% in July to 4.2%, but this figure is still higher than last year’s 3.8%.

The non-farm payrolls increased by 142,000, which, although an improvement from the 114,000 reported last time, is still far below the 2023 average increase of 202,000 per month. These figures clearly indicate that the labor market is slowing down, especially in high-paying manufacturing sectors.

Increased Likelihood of Economic Slowdown

With the unemployment rate holding steady above 4% for four consecutive months, the average unemployment rate for 2024 so far is 4%. According to the Federal Reserve’s forecast, this unemployment rate aligns with an expected GDP growth rate of 2.1% for the fourth quarter of 2024. However, an increase in unemployment is generally associated with slower GDP growth. According to Okun’s Law, if the unemployment rate stays at 4.2%, GDP growth for the fourth quarter might drop to 1.5%. Therefore, if the Federal Reserve doesn’t take swift action to adjust interest rates, an economic slowdown seems almost inevitable.

Additionally, a survey by the Philadelphia Federal Reserve indicates that professional forecasters expect GDP growth rates of 1.9% and 1.7% in Q3 and Q4 of 2024, respectively, below long-term trend levels, which aligns with expectations of a rising unemployment rate.

Interest Rate Outlook: Rate Cuts on the Horizon

The market widely expects the Federal Reserve to cut rates by 25 basis points at the meeting on September 18. Interestingly, the market also assigns a 50% probability of a further 25 basis point cut in November and 40% for December. If the Federal Reserve opts for a more substantial rate cut (such as 50 basis points), the policy rate could drop by as much as 1 percentage point before the end of 2024. Current economic data supports a cautious approach by the Federal Reserve, but once the rate-cutting cycle begins, it is likely to continue.

Market Performance and Investment Opportunities

The news of a weakening labor market has led to a widespread drop in major stock indices, with all three major indices experiencing significant declines this week. However, from a long-term investment perspective, a slowdown in the labor market isn’t necessarily negative. The upward revision of GDP growth and the onset of a rate-cutting cycle indicate that the economy may not be severely impacted, and this could even create conditions for a soft landing.

In this context, cyclical sectors such as energy, consumer discretionary, and basic materials might benefit from this trend, even though these sectors have underperformed this year. For risk-averse investors, defensive sectors such as healthcare still represent relatively safe choices.

Overall View:

• Labor Market Softening but Not in Recession: Despite weak employment data, the slight decrease in the unemployment rate and positive job growth indicate that the labor market has not entered a full recession. Employment is still growing, especially in service sectors like healthcare and education.
• Economic Growth May Slow Below Trend Levels: If the unemployment rate remains above 4%, GDP growth could slow to around 1.5% in Q4 of 2024. This further reinforces market concerns about a potential economic slowdown, especially in light of weak manufacturing performance.
• The Federal Reserve’s Rate-Cutting Cycle Is Near: Although the market expects a 25 basis point rate cut in September, the likelihood of further rate cuts in the coming months is increasing. The Federal Reserve will focus on supporting the labor market and economic growth.
• Cyclical Sectors Could Be a Bright Spot: Although markets are responding negatively in the short term, cyclical sectors might outperform in the future, particularly in a declining interest rate environment. Energy, consumer discretionary, and basic materials sectors may provide good investment opportunities.
• Investment Strategy: Diversification and Defensive Investments:Given the economic uncertainty, investors are advised to look for opportunities in cyclical sectors while also allocating some funds to more defensive sectors like healthcare to reduce risk.

In conclusion, the trend of a softening labor market offers valuable insights into future economic growth and the Federal Reserve’s rate-cutting policies. At the same time, cyclical sectors could perform strongly in the future, making them worthy of attention during the current market weakness.

Currently, the U.S. economy shows signs of potential stagflation, marked by slow employment growth, high unemployment rates, and persistent inflationary pressures. The Federal Reserve’s main task is to achieve a “soft landing” with price stability and full employment, but key economic indicators (such as the Sahm Rule, JOLTS data, and the yield curve) all suggest risks of an economic slowdown and rising unemployment, with GDP growth expected to slow.

Economic Data and Trends:

• Weak Employment Data: According to the BLS, August added 142,000 jobs, which was below the expected 165,000, and employment data for June and July was revised down. The average monthly job addition over the past three months is just 116,000, showing weak growth.
• Stagflation Concerns: Although GDP performed well (Q2 annualized growth of 3%), the weak employment market has fueled concerns about stagflation. The Sahm Rule indicates that an increase in the unemployment rate of more than 50 basis points could signal the beginning of a recession.
• Federal Debt and Government Spending: Jefferies points out that government spending accounts for a third of GDP, and expansionary fiscal policies combined with a large Federal Reserve balance sheet could exacerbate inflationary risks in the future. Government spending is considered one of the primary drivers of current GDP growth.

Future Challenges (Grey Rhino or Black Swan):

• De-Dollarization: The U.S. attempt to “weaponize” the dollar through sanctions against Russia has led several countries to adopt local currency settlements. This de-dollarization trend could weaken the global dominance of the U.S. dollar.
• Oil Shock: Oil prices may face disruptions due to tensions in the Middle East. Additionally, the depletion of the U.S. Strategic Petroleum Reserve could cause energy prices to rise significantly, negatively impacting economic growth.
• Municipal Defaults: The pressure from immigration could increase the fiscal strain on some “sanctuary cities,” potentially leading to technical defaults.
• Geopolitical Risks: The escalation of the Ukraine war and rising tensions between the U.S. and China add uncertainty to the global economy.地缘政治风险：乌克兰战争升级以及中美紧张局势加剧给全球经济增添了不确定性。

Federal Reserve Policy:

The Federal Reserve currently faces a dilemma in balancing inflation and economic growth. While economic data suggests a slowdown and rising unemployment, inflation remains above expectations. The Federal Reserve may continue to try for a “soft landing” through moderate rate cuts, but it may have to tolerate inflation higher than the pre-pandemic 2% target. Current policy remains overly accommodative, which could lead to more severe inflation or an economic recession in the future.

• The U.S. economy faces risks of stagflation, characterized by slow growth and persistent inflation.
• Government spending makes up a large proportion of GDP, and fiscal policies present challenges for future economic stability.
• Geopolitical and macroeconomic risks are increasing, which could affect both the global and U.S. economies.
• The Federal Reserve faces tough policy choices and may need to make difficult decisions between inflation and growth.

2024 Top 10 AI Models: Who is Leading the Trend of the Times?

In 2024, the field of artificial intelligence witnessed numerous revolutionary advancements, with ten major AI models standing out as representatives of technological progress. These models not only demonstrated formidable technical capabilities but also sparked a new wave in the financial market. This article will delve into these top ten AI models, analyzing their core architectures, innovative features, and potential applications in the financial market.

ChatGPT 4o: The Pinnacle of Conversational Ability

Developed by OpenAI, ChatGPT 4o, with its over a hundred billion parameters and powerful conversational abilities, has become a valuable assistant for financial analysts. Its multilingual support and multimodal interaction capabilities enable it to handle complex customer queries, generate market analysis reports, and provide precise real-time translations in multilingual environments. For multinational financial institutions, ChatGPT 4o undoubtedly serves as a tool to enhance customer service quality and efficiency.

Claude 3.5 Sonnet: Safeguarding Security and Compliance

Anthropic’s Claude 3.5 Sonnet stands out with its built-in security and controllability mechanisms, capable of generating high-quality compliance documents and legal advisory reports. This is of significant importance for financial institutions in ensuring legal compliance and risk management, thereby guaranteeing operational compliance and security while reducing potential legal risks.

Gemini Advanced: The Engine of Intelligent Decision-Making

Google DeepMind’s Gemini Advanced excels in advanced logical reasoning and multitask processing. Widely applied in financial analysis and automated decision-making, it can swiftly process massive amounts of data, conduct risk assessments, and formulate investment strategies, assisting financial institutions in making wise decisions in complex market environments.

DBRX-Instruct: The Vanguard of Data Science

Databricks’ DBRX-Instruct, with its robust data processing capabilities, serves as an ideal tool for data scientists and financial analysts. It efficiently conducts data cleaning and modeling, providing support for market predictions and customer behavior analysis, thereby helping financial institutions extract more business value from data.

You.com: The Perfect Fusion of Search and Generation

You.com integrates real-time search and text generation functions, offering instant information services and market insights to the financial market. Its highly personalized user interface and interactive experience enable financial analysts to swiftly access the required information, thereby enhancing work efficiency.

Meta Llama 3: The Expert in Multimodal Content

Meta’s Meta Llama 3 excels in handling and generating multimodal content. Its application in the financial market is mainly seen in the generation and analysis of multimedia reports, integrating text, images, and audio information to provide investors with a more comprehensive and intuitive market analysis.

Command R: The Pioneer of Emotional Interaction

Replika’s Command R introduces a new model of personalized interaction and customer service for financial institutions. Its personified dialogue and emotion recognition capabilities make customer service more intimate and efficient, enhancing customer satisfaction and loyalty.

Dolphin 2.5: The Expert in Speech Processing

Dolphin 2.5 from Mixtral 8X7B excels in speech recognition and generation. With its multilingual support and efficient text processing capabilities, it finds wide applications in call centers and voice assistants, providing financial institutions with effective customer communication solutions.

GPT-4: The Benchmark in Natural Language Processing

OpenAI’s GPT-4 continues to lead the trend in the field of natural language processing. With its stable text generation capabilities and multilingual support, it becomes the ideal choice for content generation and dialogue systems in the financial market, helping financial institutions efficiently generate market analysis, news reports, and customer communication content.

Claude 3 Opus: The Innovator in Emotion and Social Cognition

Anthropic’s Claude 3 Opus focuses on emotion recognition and social cognition. Its applications in marketing and customer relationship management can enhance customer experience through emotional interaction, helping financial institutions establish deeper customer relationships.

1. ChatGPT 4o

Developer: OpenAI

Core Architecture: Transformer

Product Features:

• Powerful conversational ability: ChatGPT 4o possesses deep contextual understanding, capable of engaging in long conversations while maintaining coherence and relevance.

• Multilingual support: Supports processing and generation in multiple languages, enabling seamless switching between different languages for conversations and text processing.

• Multimodal interaction: In addition to text, it can also handle images and audio, providing a more enriched interactive experience.

Innovations:

• Integrated image and text generation capabilities: Able to simultaneously process and generate information in multiple modalities, offering a more comprehensive user experience.

• Enhanced contextual understanding: Through improved architecture and training methods, it has strengthened its ability to comprehend long texts.

• Enhanced user customization features: Provides personalized customization options to meet the needs of different users.

2. Claude 3.5 Sonnet

Developer: Anthropic

Core Architecture: Transformer

Product Features:

• Emphasis on safety and controllability: Built-in multi-layered security mechanisms to ensure AI behavior remains within controllable boundaries.

• Advanced text generation: Capable of generating high-quality text suitable for creative writing, report generation, and other scenarios.

• Multi-task learning: Capable of handling multiple tasks simultaneously to improve efficiency and effectiveness.

Innovations:

• Built-in ethical and safety mechanisms: Through innovative design, ensures outstanding performance in safety and ethics.

• Improved reasoning and generation capabilities: Significant enhancements in complex reasoning and high-quality text generation.

• Efficient energy management: Optimizes energy consumption while maintaining high performance, enhancing model sustainability.

3. Gemini Advanced

Developer: Google DeepMind

Core Architecture: Transformer

Product Features:

• Advanced logical reasoning: Possesses outstanding logical reasoning capabilities suitable for solving complex problems.

• Multi-task processing: Capable of handling multiple tasks simultaneously, significantly improving work efficiency.

• Powerful natural language understanding: Demonstrates excellent performance in text understanding and generation, suitable for various language processing tasks.

Innovations:

• Integration of deep learning and reinforcement learning: Combining the strengths of deep learning and reinforcement learning to enhance the model’s learning and adaptation capabilities.

• Automated multi-task switching: Able to seamlessly switch between different tasks, improving efficiency.

• Enhanced cross-domain adaptability: Performs well in multiple domains, demonstrating strong adaptability.

4. DBRX-Instruct

Developer: Databricks

Core Architecture: Transformer

Product Features:

• Focus on Data Science and Analytics: Designed for data scientists and analysts, providing powerful data processing and analysis tools.

• Efficient Data Processing: Capable of processing large-scale data quickly, improving analysis efficiency.

• Powerful Model Training and Deployment: Offers simple model training and deployment functions suitable for various data science projects.

Innovations:

• Integrated Data Lake and Data Warehouse: Combines the advantages of data lakes and data warehouses to enhance data management and analysis efficiency.

• Optimized Data Preprocessing: Provides advanced data preprocessing functions to improve data analysis accuracy.

• Enhanced Analysis and Prediction Capabilities: Enhances data analysis and prediction effects through improved algorithms.

5. You.com

Developer: You.com

Core Architecture: Transformer

Product Features:

• Integrated Search and Generation: Integrates search engine and text generation functions, providing comprehensive search and information generation services.

• User Customized Experience: Offers highly personalized user interface and interaction experience.

• Powerful Natural Language Processing: Possesses outstanding natural language understanding and generation capabilities suitable for various language processing tasks.

Innovations:

• Real-time Search and Dialogue Generation: Capable of real-time search and dialogue generation, providing instant information services.

• Highly Personalized User Interface: Customized according to user needs to enhance user experience.

• Enhanced Semantic Understanding: Improves the ability to understand complex semantics through improved algorithms.

6. Meta Llama 3

Developer: Meta (Facebook)

Core Architecture: Transformer

Product Features:

• Multimodal Learning: Capable of processing various modalities of information such as text, images, and audio.

• Powerful Text and Image Processing: Demonstrates excellent performance in text and image understanding and generation.

• Cross-Domain Adaptability: Performs well in multiple domains.

Innovations:

• Integrated Visual and Language Models: Combines visual and language models to enhance comprehensive processing capabilities.

• Efficient Multimodal Fusion: Efficiently integrates information from multiple modalities to provide more comprehensive services.

• Enhanced Content Generation Capabilities: Significant improvement in content generation, suitable for creative writing, image generation, and other scenarios.

7. Command R

Developers: Replika

Core Architecture: Transformer

Product Features:

• Personalized Interaction: Provides a personalized interactive experience suitable for virtual assistants and chatbots.

• Human-like Conversations: Possesses the ability to engage in human-like conversations, enhancing user experience.

• High User Engagement: Enhances user engagement and satisfaction through interactive design.

Innovations:

• Emotion Recognition and Feedback: Capable of recognizing user emotions and providing corresponding feedback to enhance the interactive experience.

• Highly Humanized Conversation Design: Offers a more natural conversational experience through humanized design.

• Enhanced User Customization: Provides various customization options to meet the needs of different users.

8. Dolphin 2.5

Developer: mixtral

Core Architecture: Transformer

Product Features:

• Speech Recognition and Generation: Outstanding speech recognition and generation capabilities suitable for scenarios such as voice assistants and speech translation.

• Multi-language Support: Supports processing and generation in multiple languages, enabling multi-language conversion.

• Efficient Text Processing: Demonstrates excellent performance in text processing, suitable for various language processing tasks.

Innovations:

• Integrated Speech and Text Processing: Combines speech and text processing to enhance overall processing capabilities.

• Efficient Multi-language Conversion: Capable of efficiently performing multi-language conversions, suitable for multi-language communication scenarios.

• Enhanced Speech Interaction Capability: Significant improvement in speech interaction, providing more natural voice services.

9. GPT-4

Developer: OpenAI

Core Architecture: Transformer

Product Features:

• Powerful Natural Language Processing: Outstanding performance in natural language understanding and generation.

• Stable Generation Capability: Possesses highly stable text generation capabilities suitable for various applications.

• Multi-language and Multi-modal Support: Supports processing and generation in multiple languages and modalities.

Innovations:

• Optimized Language Model Architecture: Enhances model performance and efficiency through improved architecture.

• Enhanced Generation Stability: Demonstrates high stability in text generation, suitable for various applications.

• Wider Range of Application Scenarios: Applicable to processing and generation in multiple languages and modalities.

10. Claude 3 Opus

Developer: Anthropic

Core Architecture: Transformer

Product Features:

• Safety and Controllability: Incorporates multiple layers of security mechanisms to ensure AI behavior remains within controllable limits.

• Advanced Text Generation: Capable of generating high-quality text suitable for creative writing, report generation, and other scenarios.

• Emotion and Social Cognitive Abilities: Able to recognize and process emotions and social information, enhancing the interactive experience.

Innovations:

• Built-in Ethical and Safety Mechanisms:Through innovative design, ensure that AI performs excellently in terms of safety and ethics.

• Improved emotion recognition: There has been a significant enhancement in emotion recognition, enabling better understanding and response to user emotions.

• Enhanced social interaction capabilities: By improving algorithms, AI’s performance in social interaction has been enhanced.

When it comes to specific application scenarios where they excel, let’s take a closer look at how these models demonstrate their respective strengths and characteristics in different application scenarios, providing solutions for various complex tasks and needs：

1. ChatGPT 4o

Application Scenarios:

• Customer Service: ChatGPT 4o performs excellently in customer service, handling complex customer queries, providing detailed and accurate answers, thus enhancing customer satisfaction.

• Education and Training: Capable of generating teaching materials, answering student questions, and even serving as a virtual tutor for one-on-one tutoring sessions.

• Content Generation: In creative writing, news reporting, blog articles, etc., ChatGPT 4o can generate high-quality textual content, saving time and manpower.

• Virtual Assistant: As a personal or corporate virtual assistant, it can manage daily tasks, schedule appointments, send emails, and more.

2. Claude 3.5 Sonnet

Application scenarios:

• Enterprise security: The built-in security mechanisms of Claude 3.5 Sonnet make it suitable for handling sensitive information in enterprise environments, ensuring data security.
  
• Legal and regulatory compliance: Capable of generating compliant documents and legal advisory reports to ensure that enterprises comply with relevant regulations.
  
• High-end content creation: In scenarios requiring high-quality text generation, such as legal documents, technical documentation, market analysis reports, etc., Claude 3.5 Sonnet performs exceptionally well.
  
• Interdepartmental communication: Supports multitasking, helping enterprises achieve efficient communication and collaboration across different departments.

3. Gemini Advanced

Application Scenarios:

• Scientific Research: In scientific research, Gemini Advanced can handle large amounts of data, conduct complex logical reasoning and analysis, and assist researchers in experimental design and result analysis.

• Medical Diagnosis: Capable of analyzing medical data to assist doctors in diagnosis and treatment planning.

• Financial Analysis: Suitable for scenarios such as financial market analysis, risk assessment, and investment strategy formulation, providing efficient data processing and analysis.

• Automated Decision-Making: By multitasking and logical reasoning, it helps businesses achieve automated decision-making and improve operational efficiency.

4. DBRX-Instruct

Application Scenarios:

• Data Science and Analysis: Designed for data scientists and analysts, suitable for large-scale data processing and analysis tasks such as data cleaning, modeling, and visualization.

• Business Intelligence: Provides powerful data analysis tools to help businesses unearth insights from data and support business decisions.

• Machine Learning Model Training: Offers easy model training and deployment functions, suitable for various machine learning projects.

• Predictive Analysis: Through advanced analytical functions, helps businesses with market forecasting, sales forecasting, customer behavior prediction, etc.

5. You.com

Application Scenarios:

• Search Engine: Provides real-time search and information generation services to help users quickly find the information they need.

• Personal Assistant: Helps users manage daily tasks and obtain customized information through highly personalized interfaces and functions.

• Content Recommendations: Recommends relevant content based on user interests and behavior to enhance user engagement and satisfaction.

• Online Learning: Assists users in online learning and knowledge acquisition by generating educational content and providing real-time Q&A sessions.

6. Meta Llama 3

Application Scenarios:

• Multimodal Content Creation: Capable of simultaneously processing and generating text, images, and audio, suitable for scenarios such as advertising creativity, media production, and game development.

• Intelligent Customer Service: Enhancing user experience through multimodal interaction in intelligent customer service to provide more comprehensive services.

• Social Media Management: Assisting in managing social media accounts, generating content, responding to user comments, analyzing social media data, etc.

• Interdisciplinary Research: In research requiring interdisciplinary knowledge and skills, Meta Llama 3 can integrate information from different fields to provide comprehensive solutions.

7. Command R

Application Scenarios:

• Virtual Chat Companion: Serving as a virtual chat companion, providing personalized conversations to help users alleviate loneliness and improve mental health.

• Customer Interaction: Enhancing customer satisfaction and loyalty in enterprise customer service through personalized interactions.

• Educational Guidance: Providing personalized educational guidance to adapt to the needs of different students and enhance learning effectiveness.

• Social Platforms: Offering emotion recognition and feedback on social platforms to enhance user interaction experience.

8. Dolphin 2.5

Application Scenarios:

• Voice Assistant: Providing efficient voice recognition and generation services as a voice assistant, suitable for scenarios such as smart homes, in-car systems, etc.

• Real-time Translation: Supporting multilingual translation and providing real-time translation services for international conferences, cross-border communication, etc.

• Call Centers: Enhancing customer service quality and efficiency in call centers through voice interaction.

• Educational Applications: Providing voice guidance and exercises through voice recognition and generation in educational applications to enhance learning effectiveness.

9. GPT-4

Application Scenarios:

• Text Generation: Demonstrating excellent performance in scenarios requiring high-quality text generation, such as creative writing, news reporting, market analysis, etc.

• Dialogue Systems: Suitable for various dialogue systems, such as chatbots, virtual assistants, customer service systems, etc.

• Education and Training: Providing content generation and Q&A services for teaching to help students and teachers improve teaching effectiveness.

• Content Moderation: Assisting in identifying and filtering inappropriate content through natural language processing technology in content moderation.

10. Claude 3 Opus

Application Scenarios:

• Emotional Interaction: Suitable for scenarios requiring emotional recognition and feedback, such as psychological counseling, social platforms, virtual assistants, etc.

• Enterprise Communication: Provides high-quality text generation and emotional recognition to help enterprises communicate and collaborate efficiently.

• Marketing: In marketing, enhance marketing effectiveness and user engagement through emotional recognition and content generation.

• Social Services: In social services, provide emotional recognition and interaction to help improve service quality and user satisfaction.

These top ten AI models not only represent the cutting edge of technology, but also demonstrate tremendous potential in the financial market. They offer innovative solutions in customer service, data analysis, market forecasting, and risk management. With the continuous development and application of these AI models, the financial market is bound to embrace a more intelligent and efficient future.