Market Overview

Since the third quarter, the assets that have performed well include the Russell 2000 Index, gold prices, financial stocks, and U.S. Treasuries, while the assets that have performed poorly include Ethereum, crude oil, and the U.S. dollar. Bitcoin and the Nasdaq 100 Index have shown relatively stable trends.

For the US stock market, it is currently still in a bull market, with the main trend remaining upward. However, in the last few months of the year, the trading environment will lack performance themes, and both the upward and downward space of the market will be limited. The market continues to revise down its profit expectations for the third quarter.

Recently, the valuation has seen a pullback, but the rebound has come quickly, with a price-to-earnings ratio of 21 still far above the 5-year average.

93% of companies in the S&P 500 index have reported actual performance, with 79% of companies exceeding earnings per share expectations and 60% exceeding revenue expectations. The stock price performance of companies that exceeded expectations is roughly in line with historical averages, while the stock price performance of companies that fell short of expectations is worse than historical averages.

Currently, the strongest technical support in the U.S. stock market is buybacks. Corporate buyback activity has reached twice the normal level in the past few weeks, with about $5 billion a day and an annualized $1 trillion, and this buying power may gradually fade after mid-September.

Large tech stocks have shown weakened performance in mid-summer, primarily due to lowered earnings expectations and a decline in market enthusiasm for AI themes. However, the long-term growth potential of these stocks still exists, making it difficult for prices to drop significantly.

From October last year to June this year, the market experienced some of the best risk-adjusted returns of this generation, with the Sharpe ratio of the Nasdaq 100 index reaching 4(. Currently, the stock market's price-to-earnings ratio is higher, economic and financial growth expectations are slower, and market expectations for the Federal Reserve are also higher. Therefore, it is relatively difficult to expect the stock market to perform as it did in the previous three quarters. We see signs that large funds are gradually switching to defensive themes, such as increased holdings in the healthcare sector, whether through active or passive strategies. This sector provides defensiveness and growth that is not related to AI, and it is expected that this trend will not reverse quickly. Therefore, it is prudent to maintain a moderately neutral stance towards the stock market in the coming months.

At the Jackson Hole meeting on Friday, Federal Reserve Chairman Powell made the clearest statement on interest rate cuts so far, indicating that a rate cut in September is a foregone conclusion. He also expressed that he does not wish to further cool the labor market and that his confidence in the path to returning inflation to 2% has strengthened. However, he still insists that the pace of policy easing will depend on future data performance.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral to Optimistic on the Market for the Remainder of the Year])https://img-cdn.gateio.im/webp-social/moments-9db89ee82ca5eccb2334930354dfd33a.webp(

I personally believe that Powell's statement this time was not unexpectedly dovish, so it did not stir much in the traditional financial markets. What everyone is most concerned about is whether there is a chance of a single 50 basis point rate cut within the year, and Powell did not hint at that at all. Therefore, the expectations for rate cuts this year have hardly changed from before.

If future economic data improves, the current expectation of a 100 basis point rate cut may even be subject to a downward adjustment.

However, the cryptocurrency market is reacting strongly, which may be due to too many shorts being accumulated, causing a squeeze ). For example, the recent rapid increase in positions but frequent negative funding rates on contracts (, as well as the understanding of macro news by crypto players not being as synchronized as in traditional markets, leading to a greater damping effect in message transmission; many people may not even know that Powell is going to speak at the Jackson Hole meeting this week. But whether the current market environment supports the cryptocurrency market hitting new highs is still questionable. Generally speaking, for hitting new highs, in addition to the macro environment needing to be loose and emotions needing to be risk-on, the native themes of crypto cannot be lacking either. NFT, DeFi, the opening of spot ETFs, and meme frenzy all count. Currently, it seems that the only strong theme is the growth of the Telegram ecosystem. Whether it has the potential to become the next theme will depend on the performance of the latest token issuance projects and how substantial the incremental users they bring in are.

The surge in the cryptocurrency market is also related to the significant downward revision of last year's non-farm employment numbers in the U.S. this week. However, it has been deeply analyzed before that this revision is excessive and overlooks the contribution of illegal immigrants to employment. When the employment numbers were initially recorded, these individuals were included, so the significance of this correction is minimal. As a result, traditional markets reacted lukewarmly, while the cryptocurrency market interpreted this as a sign of major interest rate cuts.

![Cycle Capital Macro Weekly Report (8.25): Trends Slow Down, but Neutral to Optimistic on the Market for the Remainder of the Year])https://img-cdn.gateio.im/webp-social/moments-c675476dd97413f93db474e8d4769094.webp(

Based on the experience from the gold market, most of the time the price is positively correlated with the ETF holdings. However, in the past two years, the market structure has changed, and most retail and even institutional investors have missed out on the rise in gold prices, while the main buying force has shifted to central banks.

Data shows that the inflow rate of Bitcoin ETFs significantly slowed down after April. In Bitcoin terms, it has only grown by 10% over the last five months, which aligns with its price peaking in March. If the risk-free rate of return decreases, it may attract more investors into the gold and Bitcoin markets, which is very likely.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral to Optimistic on the Market for the Remainder of the Year])https://img-cdn.gateio.im/webp-social/moments-c20d1fa2f14a9fd14073752e2cd3dc13.webp(

From the perspective of stock positions, earlier this summer, subjective strategy funds performed quite well, timely reducing positions, and had an opportunity to be aggressive in August. Recently, the pace of replenishing positions has been very fast, with the position returning to the historical 91st percentile, while systematic strategy funds have reacted a bit slower, currently only at the 51st percentile.

Short sellers in the stock market closed their positions during the decline.

In terms of politics, Trump's approval rating has stopped declining, and betting odds are rising. Over the weekend, Trump also received support from Little Kennedy. Trump's deal may heat up again, which is generally good news for the stock market or cryptocurrency market.

Capital Flow

The Chinese stock market has been declining, but funds with Chinese concepts have been experiencing net inflows. This week, the net inflow of $4.9 billion reached a five-week high, marking the 12th consecutive week of net inflows. Compared to other emerging market countries, China also has the highest inflow. Those who dare to increase their positions against the trend in the current market downturn are either state-owned enterprises or long-term funds, betting that as long as the stock market does not close, it will eventually rebound.

However, structurally, from the perspective of a certain investment bank client, there has basically been continuous reduction in A-shares since February, and recently the main increase has been in H-shares and Chinese concept stocks.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral to Optimistic on the Market for the Rest of the Year])https://img-cdn.gateio.im/webp-social/moments-28c07cb7668a88dc8898c81dc7aecc43.webp(

Despite the recovery of global stock markets and capital inflows, the low-risk preference money market fund sector has also seen inflows for four consecutive weeks, with the total scale rising to $6.24 trillion, setting a new historical high, indicating that market liquidity remains very abundant.

![Cycle Capital Macro Weekly (8.25): Trend slows down, but a neutral optimism towards the market for the rest of the year])https://img-cdn.gateio.im/webp-social/moments-64585bf2523c9889940e1a31b46148a2.webp(

The financial situation in the United States has been a topic of speculation almost every year. As the data shows, the U.S. government debt could reach 130% of GDP within a decade, and interest payments alone will amount to 2.4% of GDP, while military spending to maintain U.S. global hegemony is only 3.5%. This is clearly unsustainable.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral to Optimistic About the Market for the Rest of the Year])https://img-cdn.gateio.im/webp-social/moments-b5f845f7002b74e7f6695a09a6265870.webp(

US Dollar Weakens

In the past month, the US dollar index has fallen by 3.5%, marking the fastest decline since the end of 2022, which is related to the market's enhanced expectations for a rate cut by the Federal Reserve.

Looking back at the beginning of 2022, the Federal Reserve adopted an aggressive interest rate hike policy to combat inflation, which strengthened the dollar. However, by October 2022, the market began to anticipate that the Federal Reserve's interest rate hike cycle was nearing its end, and that it might even start considering rate cuts. This expectation led to a decline in demand for the dollar, causing it to weaken.

The current market seems to be a replay of the past, except that the speculation back then was too ahead of its time, and today the interest rate cut is about to land. If the dollar falls too much, the unwinding of long-term arbitrage trades may emerge again, becoming a force to suppress the stock market.

![Cycle Capital Macro Weekly Report (8.25): Trends Slow Down, but Neutral to Optimistic Outlook for the Market for the Rest of the Year])https://img-cdn.gateio.im/webp-social/moments-7b54ab12c10caa6ac22dd94b8bb41979.webp(

Next week's two major themes: inflation and Nvidia

Key price data includes the PCE inflation rate from the United States, the preliminary CPI for August from Europe, and the CPI from Tokyo. Major economies will also release consumer confidence indexes and economic activity indicators. In terms of corporate earnings reports, the focus will be on NVIDIA's earnings report after the U.S. stock market closes on Wednesday.

The PCE released on Friday is the last PCE price data before the Federal Reserve's next decision on September 18. Economists expect the core PCE inflation month-on-month growth to remain at +0.2%, with personal income and consumption growing by +0.2% and +0.3% respectively, remaining the same as in June. This indicates that the market expects inflation to maintain a moderate growth momentum without further decline, leaving room for potential downside surprises.

NVIDIA Earnings Preview - Clouds Lifted, Expected to Inject Strong Confidence into the Market

NVIDIA's performance is not just a barometer for AI and technology stocks, but even for the sentiment of the entire financial market. Currently, there are no issues with demand for NVIDIA, but the key theme remains the impact of the delay in the Blackwell architecture. After reading several institutional analysis reports, I found that the mainstream opinion on Wall Street believes that this impact is minimal. Analysts generally maintain an optimistic outlook for this earnings report, and NVIDIA's actual reported results have exceeded market expectations in the past four quarters.

The key indicators of market expectations are:

• Revenue of 28.6 billion USD, year-on-year +110%, quarter-on-quarter +10%
• EPS $0.63 YoY +133.3%, QoQ +5%
• Data center revenue $24.5 billion, year-on-year +137%, quarter-on-quarter +8%
• Profit margin 75.5% unchanged from Q1

The most concerning questions are:

1.Has the Blackwell architecture been delayed?

Some investment banks analyze that NVIDIA's first batch of Blackwell chips will be delayed in shipment by approximately 4-6 weeks, expected to be postponed until the end of January 2025, leading many customers to procure H200, which has a much shorter delivery time. TSMC has begun production of Blackwell chips, but due to the complex CoWoS-L packaging technology used for B100 and B200, there are yield challenges, and initial output is lower than originally planned, while H100 and H200 use CoWoS-S technology.

However, this new product was not included in the recent performance forecast.

Since Blackwell is not expected to enter sales until the first quarter of 2024 Q4 ) in 2025, and NVIDIA only provides guidance for single-quarter performance, the impact on performance for Q2 and Q3 of 2024 is not significant. At the recent SIGGRAPH conference, NVIDIA did not mention the impact of the delay of the Blackwell GPU, indicating that the impact of the delay may be minimal.

2. Has the demand for existing products increased?

Secondly, the decline of B100/B200 can be compensated by increasing the growth of H200/H20 in the second half of 2024.

According to a prediction from a certain investment bank, the production of B100/B200 substrate (UBB) has been revised down by 44%. Although deliveries may be partially postponed to the first half of 2025, leading to a decrease in shipment volume in the second half of 2024, H200 UBB orders have significantly increased, expected to grow by 57% from the third quarter of 2024 to the first quarter of 2025.

Based on this estimate, the H200 revenue for the second half of 2024 is expected to be $23.5 billion, which should be enough to offset the potential $19.5 billion loss related to B100 and GB200 - equivalent to 500,000 B100 GPUs or $15 billion in implied revenue loss, as well as an additional facility revenue loss of $4.5 billion from (NVL 36). We also see potential upside from the strong momentum of H20 GPUs, which is mainly