CITIC Securities US Equity Strategy: No Panic Observed; Momentum Trades Unwound Amid Quarter-End Rebalancing

On one hand, the cumulative gains of tech stocks in the second quarter have been excessive, with chip concentration rising to extreme levels, and the trading proportion of momentum-driven sectors such as storage and optical communication continuing to climb. On the other hand, as the quarter draws to a close, the demand for stock-bond rebalancing by pension funds and hybrid funds, combined with de-leveraging operations by hedge funds, is leading to concentrated selling pressure. From the perspective of market internal structure, capital rotates among Hyperscaler, semiconductor, and software communication sectors, while defensive sectors such as healthcare and consumer absorb risk-averse funds. Overall, the situation still belongs to repricing within the tech sector, rather than a trend reversal. On the financing front, Hyperscaler is gradually issuing overseas bonds for financing, and the private credit market is also facing quarter-end redemption pressure, with the market becoming increasingly concerned about the commercialization pace of AI and the sustainability of capital expenditure. However, Berkshire’s participation in Google-related equity investment shows that industrial capital’s confidence in the long-term logic of AI remains strong. In terms of monetary policy, the market has begun to price in a restart of Fed rate hikes, but factors such as the decline in oil prices, falling inflation expectations, and sluggish housing prices indicate that the market may be overpricing Fed monetary tightening, and the actual threshold for rate hikes in the second half of the year is higher than current market expectations. Currently, S&P 500 and Nasdaq valuation percentiles have dropped significantly from their historical highs, while full-year earnings expectations for US stocks are being steadily revised upward, so the match between valuation and earnings remains attractive. From an industry allocation perspective, it is recommended to focus on four major directions in the second half of the year: technology, military industry, energy infrastructure, and finance, as basic fundamentals will continue to dominate the main trading themes in the market.