The Crossroads of a Structural Bull Run: AI Capital Expenditure, Dollar Liquidity, and Market Rebalancing_

Title: The Crossroads of a Structural Bull Run: AI Capital Expenditure, Dollar Liquidity, and Market Rebalancing

Author: arndxt

Compiled by: Tim, PANews

The outlook for a macroeconomic re-acceleration is relatively limited, and its sustainability relies on the support of affluent households and AI-driven capital expenditures. For investors, the key to this cycle is not widespread Beta returns:

• Focus on semiconductor and artificial intelligence infrastructure as a long-term growth driver.
• Remain cautious about broad-based indices, as the concentration of the seven tech giants masks market fragility.
• Pay attention to the movement of the US dollar: its direction may determine whether the current cycle continues or ends.

Similar to the 1998-2000 cycle, the fundamentals of the market may still remain solid, but volatility will be more intense, and asset selection will become the key factor in distinguishing active winners from those who simply rise with the market.

1. Dual-track economy

The market is the economy. As long as the stock market is at or near historical highs, recession rhetoric is difficult to form.

We are undoubtedly in a dual-track economic model:

The top 10% of income earners contribute over 60% of consumer spending. They leverage their wealth accumulated through stocks and real estate, resulting in a continuous increase in consumption levels.

At the same time, inflation has particularly severely eroded the wealth of low- and middle-income families. This widening gap is precisely the reason for the coexistence of the economic "re-acceleration" and a weak labor market along with an affordability crisis.

2. The Federal Reserve policy is seen as a narrative risk.

Policy fluctuations will become the norm, as the Federal Reserve faces a dual challenge of inflationary appearances and the political cycle. This creates a window for opportunistic positioning, but it could also trigger a sharp downward shock during expectation resets.

The Federal Reserve is in a dilemma:

• Strong GDP data and resilient consumer spending prove that slowing the pace of interest rate cuts is reasonable.
• The market is overly expanded, and delaying interest rate cuts may trigger "growth panic".

Historically, lowering interest rates during strong profits (the last occurrence was in 1998) often extends the bull run cycle. However, the current cycle has shown distortions: inflation remains stubborn, the "Seven Giants" of the US stock market dominate profits, while the other 493 components of the S&P 500 are underperforming.

3. Asset Selection in a Nominal Growth Environment

Configure scarce physical assets (gold, key commodities, real estate in supply-constrained areas) with productivity platforms (AI infrastructure, semiconductors), while avoiding excessive concentration in the influencer stock sector driven by online hype.

The future situation is more likely to approach a structural bull run, rather than a broad-based rally.

Semiconductors remain the foundation of artificial intelligence infrastructure, and capital expenditure continues to drive growth.

Gold and physical assets are steadily re-establishing their position as a hedge against currency devaluation.

Cryptocurrencies are facing dual pressures from leveraged liquidations and a backlog of government bonds, but their structure remains closely tied to the liquidity cycle that drives up gold.

4. Real Estate Market and Consumption Dynamics

If both the housing market and the stock market are weak, the psychological "wealth effect" on consumption will collapse.

The real estate market sees a short-term rebound (dead cat bounce) when interest rates are cut, but structural difficulties still exist:

• Supply and demand imbalance caused by population pressure.
• The end of the student loan and Federal Housing Administration's pause on repayment policies has led to a surge in cases of lost foreclosure rights.
• Regional economic differentiation (the coexistence of asset buffering by the baby boomer generation and pressure on young families).

5. USD Liquidity

The US dollar is a hidden pivot, and in times of a weak global economy, a strengthening dollar may first crush the more vulnerable markets rather than the United States.

An underestimated risk is the contraction of the dollar supply.

Tariffs will reduce the trade deficit, thereby limiting the global flow of dollars back to US assets.

The fiscal deficit remains high, but due to a decrease in external buyers of U.S. government bonds, the liquidity mismatch issue has already emerged.

The Commodity Futures Trading Commission (CFTC) positions data shows that short positions on the dollar have reached historical levels, indicating a potential short squeeze on the dollar, which could impact risk assets.

6. Political Economy and Market Psychology

We are at the final stage of the financialization cycle:

• Economic policies are designed to "maintain the status quo" before key political events (elections, mid-term elections, etc.).
• Structural inequality (rental increases higher than wages, wealth concentrated among older groups) gives rise to populist pressures, prompting policy changes across various fields from education to housing.
• The market itself has dual characteristics: the concentration of the seven major weighted stocks not only supports valuations but also lays the groundwork for vulnerability.