In the past week, the Shanghai and Shenzhen stock markets experienced some volatility, with significant divergence in key indices. The Shanghai Stock Exchange Composite Index (SSE Composite Index), Shenzhen Stock Exchange Component Index (SZSE Component Index), and SSE Science and Technology Innovation Board 50 Index all closed higher, while the SSE 50 Index, ChiNext Index, and SZSE SME 100 Index closed lower. Shenwan's first-level industries saw gains in 21 sectors and declines in 10. The top three gainers were computers (+3.88%), automobiles (+3.62%), and communications (+3.20%), while food & beverages (-1.37%), power equipment (-0.67%), and building materials (-0.52%) were the three biggest losers. Trading data showed capital flowing out of large-cap stocks into small-cap stocks. Meanwhile, the smart vehicle sector, led by major players such as Huawei and Xiaomi, has remained robust in the recent period.

As for the domestic market, significant statistics released in October show that the scale of social financing expanded by 1.85 trillion yuan, an increase of 910.8 billion yuan over the same period last year. This is primarily due to a substantial increase in the net financing scale of government bonds to 1.56 trillion yuan, indicating intensified policy effort. M2 grew 10.3% from a year ago, maintaining the same growth rate as the previous month but down by 1.5% compared to the same period last year. Additional inflation data suggests that monetary policy has room for further easing. Value-added industrial output rose by 4.6%( previously 4.5%), while total retail sales grew by 7.6% year-on-year (previously 5.5%). Economic data indicates a relatively stable growth rate compared to the previous quarter. With the continued implementation of growth-stabilizing policies, market confidence is expected to recover, paving the way for a steady economic recovery. According to the latest data from the China Association of Automobile Manufacturers (CAAM), automobile sales in October surged by 13.8% year-on-year, setting a new record for production and sales volume for the same period in history. The smart car sector is still expected to have a positive impact on consumption. Notably, the positive outcome of the China-U.S. summit meeting is sending optimistic signals about bilateral relationship, fueling market expectations for future improvements in bilateral ties. The leaders of both nations engaged in discussions on pressing market concerns, including U.S. export controls and unilateral sanctions. They also agreed to promote and strengthen dialogue and cooperation across various sectors of China-U.S. relations, including artificial intelligence, resumption of high-level military contacts, China-U.S. Defense Policy Coordination Talks, China-U.S. Military Maritime Consultative Agreement meetings, and expanding exchanges and cooperation in education, international students, youth, culture, and sports. Given the current complex international background, the favorable results of the meeting between China and the U.S. allow China to focus more on domestic economic stability.

In the global market, current inflation in the U.S. remains a major disruptive factor. While the current CPI is still far off the Fed's 2% target, there are signs of further deceleration in core inflation, which gives more clarity to the Fed’s interest rate hike policy. The author believes that the Fed is unlikely to raise interest rates in December, and its interest rate hike cycle is essentially coming to an end. The Fed’s tightening stance is not expected to change significantly in the short term, and the earliest possibility for a rate cut could be in the third quarter of next year, which means high interest rates are likely to persist for an extended period. However, the waning anticipation of a Fed interest rate hike, along with a decline in U.S. Treasury yields, will offer a solid base for the U.S. stock market in the near future. As for the domestic market, the decline in US Treasury yields and the continued recovery of the renminbi exchange rate are expected to ease the strain on the valuation of Chinese assets. Moreover, the China-U.S. meeting is poised to bolster foreign investors' positive outlook on China’s improving equity market.

In summary, the current market sentiment leans toward caution, with hopes for more positive news from China and the U.S. The momentum for short selling is weakening due to government intervention. It is important to continue monitoring the market's structural changes. From a strategic perspective, we should focus on investment opportunities arising from technological innovation and the easing of Sino-U.S. relations. The oversupply of semiconductors has led to a decline in prices, which can benefit the development of technological innovation industries throughout the supply chain from midstream to downstream, such as consumer electronics, robotics, smart driving electric vehicles, computing power, and artificial intelligence.