I mentioned last Thursday that the coming days might not be easy. Why do I say this? Looking at the U.S. stock market, if we connect last Friday's adjustment with the adjustments from early November to late November, it is very likely to be an adjustment that exchanges time for space. There might even be another valuation 'second hit'.
There are mainly two reasons for this adjustment. First, there are issues with Oracle's financial report; the conversion of orders into revenue did not meet expectations, free cash flow has been heavily consumed, and data center deliveries have been delayed, which has made the market start worrying about AI expenditure. Moreover, the performance of the downstream revenue side will only be confirmed when the next quarter's financial report comes out. As for Broadcom, I personally feel it has been wrongly penalized; its guidance has exceeded expectations, and although the accumulated orders are slightly lower, it has stated that this is the minimum value. However, the market is worried that its capacity is already maxed out, which will affect revenue growth in 2026. Second, I mentioned at the beginning of the month that after the interest rate meeting, many significant events would occur in the middle of this month, and market volatility would surely increase, prompting everyone to naturally think about avoiding risks first.
Let's take another look at the situation this week and later this month.
The economic data for November is about to be released, with the non-farm unemployment rate and inflation data set to be announced on Tuesday and Thursday, respectively. These data will have a significant impact on the market, and an interesting situation arises: the data needs to be bad enough to be considered good for the market. The ideal scenario is that the new non-farm jobs do not exceed expectations, unemployment rises, and inflation is below expectations. These data points affect the market differently; if the non-farm data isn't too bad, the market won't panic too much. But if inflation exceeds expectations, the market could be in turmoil. On one hand, this would further suppress expectations for easing next year, and on the other hand, long-term bond yields may continue to rise. Last Thursday and Friday, the market adjusted, partly due to the rapid rebound in the ten-year Treasury yield, indicating that the market is very concerned about inflation and the future endpoint of interest rate cuts, needing a higher premium to compensate.
On Friday, Japan will raise interest rates, which will definitely have an impact, but the degree of influence is expected to be small. So far, the USD/JPY exchange rate remains high, and there is no sign of large-scale capital flowing back from dollars to yen. Furthermore, the ten-year Japanese bond yield is still rising. If funds return to yen, most of it will not just sit in banks but will be invested in Japanese bonds. The Bank of Japan's monetary policy meeting on Friday is not about whether to raise rates this time, but about the outlook for future interest rate policy. People are concerned about when the next increase will be after this one, and what the future endpoint rate will be. Personally, I expect that after this, there will be at most one or two more rate hikes, and the intervals will be relatively long, possibly taking six months or even longer to raise rates again. The Bank of Japan may stop around a 1% rate to observe for a while. Why do I say this? Because the Bank of Japan wants to escape the long-term negative interest rates and normalize rates. However, Japan's economic situation and the fiscal stimulus they plan to implement also determine that it will be difficult for them to raise rates too high.
Regarding the Affordable Care Act subsidies, there was actually a vote on the 11th, and both the Democratic and Republican proposals failed. However, the good thing is that moderates voted on both proposals. The House and Senate will be in recess on Wednesday and Thursday this week; let's see if the Speaker of the House's claim of progress this week is true. From my observation, the market has already assumed that the congressional negotiations will drag into January, so the impact on the market this month may not be significant. But if the negotiations continue into January, the impact on the market could be substantial, as the vote on the Affordable Care Act subsidy plan relates to whether the U.S. government will continue to face a shutdown after the end of January 2026.
The Supreme Court's ruling on whether tariffs are unconstitutional was reported by the media to be expected this month, but it may also be delayed until early next year. If the ruling finds the tariffs illegal, Trump can still use other legislation to implement industry tariffs, but he will have to return part of the tax revenue, increasing fiscal pressure. However, this is good for businesses, as commodity tariffs will decrease, which helps curb inflation. It remains to be seen if Trump's pressure on the Supreme Court will be effective.
If these events this week have a significant impact on the market, I think it could be an opportunity to buy during the downturn. There are a few turning points worth paying attention to later.
First, the nomination for the next Federal Reserve Chair has been officially announced. No matter who it is, they will likely lean towards Trump's stance.
Second, with the advancement of the Fed's RMP, liquidity is indeed slowly improving. You can see that bank reserves have already started to rise.
Third, the Christmas market in late December, according to historical patterns, has more than a 70% probability of occurring.
Fourth, at the beginning of January, some banks will start to implement the new SLR untethering regulations ahead of schedule. If this can lower long-term bond yields, it could alleviate market concerns to some extent.
Fifth, I think GPT 5.2 is worth paying attention to. Although opinions on it vary, it is clear that GPT 5.2 is aiming at the B2B sector. The demand in production work environments is very strong, which is noticeably different from 5.1.
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