CITIC SEC: The toughest times in the US stock market may be over, cautiously optimistic about current investment opportunities in the technology sector.

CITIC SEC released a research report stating that, with signs of temporary easing of the tariff drama by the Trump administration, the most difficult time for the US stock market may have passed. The report considers the soft landing of the US economy as the current benchmark scenario, and predicts that under this scenario, the average annual performance of US tech companies in the stock market may be downgraded by 0% to 10%. In addition to the relatively reasonable valuation levels at present, the report cautiously and optimistically views the investment opportunities in the US tech sector, with a preference for the following sectors: semiconductors, internet, software, and hardware. Key points from CITIC SEC: Market adjustment: Tariff drama dominated by human factors. On April 9th, following US President Trump's announcement of a 90-day postponement of equivalent tariffs for most countries, the US stock market experienced a significant rebound after a recent continuous decline, with the Nasdaq index rising by 12%. Due to the unpredictable operations of the Trump administration in terms of tariffs, from the peak earlier this year to April 8, the Nasdaq index had accumulated a 24% decline, officially entering a technical bear market. During this period, the cumulative decline in US tech-related indices was close to that during the 2018 trade friction. Similar to characteristics observed at previous bear market bottoms, relatively cheap valuation levels, low long positions, and policy shifts led to the significant rebound in the US stock market on April 9. However, historical experience also suggests that market recovery and stabilization still require improvement in fundamentals. This remains the key issue that US tech stock investors wish to understand. Tariff impact: Two direct and indirect paths. 1) Direct impact: Hardware such as mobile phones and PCs. Currently, most IT hardware products entering the US are produced and assembled outside the country. The most affected are mobile phones and PCs, with their production and assembly lines mainly located in Asia. Taking Apple as an example, around 30% of its global sales of phones are in the US. Calculations show that tariffs will have a significant short-term impact on the performance of companies like Apple. 2) Indirect impact: Decreased total market demand, disrupted supply chains, affecting internet, software, and semiconductors. Internet and software are less directly affected by tariffs, and currently, the Trump administration has not introduced tariffs on semiconductors. However, the rising trade costs and supply chain disruptions brought about by tariffs will affect total market demand, impacting online advertising, IT spending, end consumer demand, and so on. Scenario analysis: Drama quickly resolving with limited economic damage as the benchmark scenario. In this so-called "game of chicken," the complexity of the game far exceeds understanding and analysis. Based on current public information, the final result can be simplified into two possible scenarios: 1) Benchmark scenario: Drama quickly resolves with minimal fundamental damage. For the Trump administration, the optimal strategy is to reach their goals within a very short time window and minimize the impact on the economy and interference. Currently, US economic hard data still show resilience while soft data indicates weakening signs. However, historical experience suggests that the correlation between expectations and real data is not necessarily logical. It is expected that the US economy will achieve a soft landing as a high probability event, with relatively small damage to the performance of US tech companies, mostly affecting second-quarter performance. The average downward revision of US tech companies' annual performance is expected to be 0% to 10% under this scenario. 2) Low probability: Repeated back and forth, leading to a US economic recession. The baseline tariffs are still in effect, and uncertainties remain in trade negotiations between the US and other regions. Combined with the ongoing tight financial market liquidity, the risks to the market have not completely dissipated. If the Trump administration continues its series of incomprehensible operations, a US economic recession remains a possible scenario. Investment outlook: Semiconductors, internet, software, hardware. The positive progress in trade negotiations, as well as the clarity on the extent of damage to corporate fundamentals during the earnings season, are key variables that will determine market trends in the short term. Under the benchmark scenario assumption, even when considering the risks of future earnings downgrades, current valuations provide a good protection. The investment recommendation in this fundamental scenario is to be actively stable, with a preference for the following sectors: semiconductors, internet, software, and hardware. 1) Semiconductors, AI (one of the most certain directions), storage chips & analog chips (cyclical recovery), semiconductor equipment; 2) Internet, major tech giants, as well as companies in advertising platforms and financial technology platforms; 3) Software SaaS, with lower bases, reasonable valuation levels, catalyzed by AI, preferentially in the areas of basic software for data management, application software + AI, and high-growth areas in information security (Identity, data security & backup, etc.); 4) Hardware, focusing on network devices, AI servers, etc. Risk factors: Risks of escalating tariff drama; Uncertainties in the operating style of the Trump administration; Risks of AI core technology development falling short of expectations; Risks of continuous tightening of policies and regulations in the tech sector; Risks of global macroeconomic recovery falling short of expectations; Risks of macroeconomic fluctuations leading to lower-than-expected IT spending (especially in AI spending) by European and American companies; Risks of data breaches and information security; Risks of intensifying industry competition, etc.