Industrial: How to view Black Friday in the US stock market? How does it affect the A-share market?

Industrial issued a research report stating that for configuration strategies, it is emphasized not to switch just for the sake of switching. Recent external disruptions do not change, but are expected to further strengthen the underlying logic of A-share profit driving. Currently, technology growth represented by AI is still the direction with strong earnings certainty and continued prosperity advantages. The recent disruptions do not constitute a signal for systemic style switching. As for the cyclical style rotation, with the approach of the July earnings forecast disclosure period, the relative strength of the economy and the relative change in earnings remain core clues. In specific directions, in addition to continuing to adhere to the AI internal economy's most certain direction, based on the change in 2026 Wind earnings consensus expectations for each industry after the first quarter report, and combined with the performance of the rise and fall, select the directions that are currently low in performance. Directions with significantly increased earnings expectations after the first quarter report mainly focus on: AI computing power: semiconductors, optical communications, components, electronic chemicals; Advanced manufacturing: ships, AI equipment, battery storage; Cyclicals: non-ferrous metals, petrochemicals (chemical fibers, agrochemicals, refining, plastics, etc.), coal, environmental protection, shipping ports, etc.; Consumption & finance: accessories, trade retail (retail, internet e-commerce), Shenzhen Agricultural Power Group processing, beverages and dairy products, non-banking financial institutions (diversified finance, securities firms), large state-owned banks. Among them, directions with lower growth since May include: advanced manufacturing & export chains (battery storage, ships, AI equipment), coal, petrochemicals (agrochemicals, chemical fibers, refining), some new consumption & service consumption (accessories, beverages and dairy products, retail), securities firms, state-owned banks, and non-ferrous metals. Industrial's main points of view are as follows: How to view the black Friday in the US stock market? What is the nature of the adjustment? On June 5th, the US stock market experienced a "black Friday," with technology stocks facing a large-scale adjustment. The triggering reasons behind it are, first, Broadcom, the AI chip leader in the US stock market, did not meet market expectations, and second, strong non-farm employment data in the US raised expectations of liquidity tightening. Due to larger changes in overseas factors at both the macro and industry levels in recent years, as external factors deepen their impact on the pace and structure of A-share market developments, the market is paying more attention to how this adjustment in the US stock market will be transmitted to the A-share market. This adjustment in the US stock market seems to be a change in macro and industrial logic, but fundamentally it is a result of capital behavior, with influences on sentiment and structure. The concentrated trading structure prior to the adjustment amplified the volatility brought about by negative news, leading the market to overestimate the impact of these events. Essentially, amidst the background of crowded trades, some capital took advantage of negative news to profit and perform a "rebalancing" of structures. Therefore, this round of adjustment does not indicate a change in the core logic supporting the market, rather it is more of a disturbance on the emotional level, with the impact leaning towards the structural aspects: Firstly, the US stock market on Friday did not experience a panic-induced overall decline; looking at the market performance, it appeared more like a long-awaited market "rebalancing." The major decline was mainly in the technology and discretionary consumables sectors which have experienced significant gains since April, while everyday consumables, utilities, real estate, healthcare, and finance rose against the tide. Secondly, in regards to the non-farm employment data itself, there are also elements of one-time disruptions, and the sustainability of these effects remains uncertain. Therefore, there is further room for adjustment in the market's expectations of rate hikes this year. Although the total number of non-farm jobs in the US for May greatly exceeded expectations, the structure was highly fragmented, primarily driven by leisure and hospitality sectors. The former was mainly affected by seasonal adjustments caused by Memorial Day and a one-time effect from the lead-up to the World Cup, with sustainability being questioned. Furthermore, the labor force participation rate and the unemployment rate remained unchanged in May, and wage growth on a year-on-year basis continued to decline, indicating weak intrinsic dynamics in employment. Looking ahead, the sustainability of strong employment remains questionable, and with a significant decrease in the intensity of the US-Iran conflict, inflation may experience upward pressure but is likely to be controllable, which may not be enough to push for rate hikes. Therefore, the current stance of the Federal Reserve to remain on the sidelines and maintain a wait-and-see approach or the most optimal path, rate hikes are not the baseline scenario. The current market pricing of rate hikes this year leaves room for further adjustments. Therefore, this adjustment in the US stock market is more about the need for a rebalancing of crowded trades before switching to a new structure, rather than a systemic risk brought about by changes in the core logic of the market, and the disturbance will be more towards sentiment and structure. How to view the future AI market? Is this adjustment a signal of the market's end? For the structure, the core concern of the market is how this adjustment will affect the global AI market and whether it represents the end of the current AI market cycle. Looking ahead, under disruptions brought about by a series of global liquidity events (US CPI data + ECB and BOJ interest rate meetings + SpaceX going public), along with a "vacuum period" for profits, high volatility in technology stocks may continue, and the market may use this as an opportunity for another "rebalancing" of structures. In terms of the timing and scope of adjustments, examining past experiences of the AI and tech sectors: in terms of scope, without considering extreme risk events, a 10-15% pullback is the threshold for the largest Nasdaq retracement (corresponding to the 60-day moving average); in terms of timing, 20-30 days of oscillation and fluctuations fits historical patterns. However, for this current AI market, it is important to emphasize that "denominators often create buying opportunities, while numerators determine the end of the market trend." Recent and future disruptions that market participants are concerned about are fundamentally issues related to crowded trades, liquidity, and sentiment at the denominator level, and these do not necessarily indicate the end of a significant industrial trend in the market, but rather bring about opportunities for buying due to volatility. As we await the start of the July earnings season, validation of the strength of the economy and industrial trends will serve as another catalyst for the global AI market: For the US stock market, the current market scenario bears similarities to the end of July 1994: worries about Google's cloud and advertising revenue below expectations were the turning point for the crowded trades in May. Subsequently, a reversal in the yen carry trade led to worsening global financial conditions, coupled with disappointing US non-farm data, triggered fears of a recession as unemployment rates triggered the "Sam Rule", exacerbating a market adjustment. Following statements from the Bank of Japan and the Federal Reserve in August, and a surprise 50 basis point rate cut by the Fed in September to relieve recession concerns, the market bottomed out and rebounded. Most significantly, with the start of the October earnings season and the validation of the tech sector's strong prospects with data, the Nasdaq once again reached historical highs. Looking at the current situation, firstly, the overextension of liquidity expectations may have a "self-reversal" effect in the future, and secondly, after the digestion of crowded trades, the July earnings season will be another catalyst for the AI market. The situation is similar for the A-share market. After a brief period of overseas disruptions and sector rotations, the return of technology companies in the July earnings season could serve as a benchmark for the current situation. In recent years, for industries with strong trends supported by the economy, such as new energy from 2020-2021 and solar modules since 2024, the earnings season kick starts the main uptrend, taking into account the digestion of crowded trades during the "vacuum period." Therefore, after a short-term period of digestion and rotation of crowded trades during the earnings vacuum period, July will usher in another round of intense catalytic phases for domestic and international technology companies, during which technology is expected to make a return. Therefore, for the current AI market, concerns about crowded trades, liquidity, and sentiment at the denominator level should not be seen as signals of the market's end, but rather create opportunities for positioning during the July earnings window. Validation of strength in the economy and industrial trends at the numerator level is the key to the continuation of the AI market. How to respond? Don't switch just for the sake of switching, focus remains on the economy Following the recent global technology resonance adjustment, some investors see it as a signal for switching styles. However, the firm believes that there is no need to switch just for the sake of switching, as the relative strength of the economy and the relative change in earnings remain the core factors of rotation: Firstly, recent external disruptions do not change the underlying logic of strong earnings and prosperity in the A-share market this year, and instead will further increase the market's emphasis on earnings. After two years of continuous valuation growth, the main contradiction in A-share pricing this year has shifted from valuation to earnings, and from expectations to reality. The rise in oil prices caused by the US-Iran conflict and changes in global liquidity expectations are further accelerating the market's focus towards fundamental economic certainty. Looking at the performance of various factors, revenue growth, order growth, net profit growth, and actively managed funds are important indicators of the economy, making prosperity a core element of market structure this year. Moreover, recent disruptions are fundamentally changes at the denominator level and will further enhance the market's focus on earnings at the numerator level. Profit will continue to be the most important source of returns in the market and the core factor driving structural rotation. Secondly, as we approach the earnings disclosure period and the effectiveness of prosperity investments, the market's focus on earnings will be further strengthened. In June and the first half of July, as the mid-year earnings forecast disclosure period approaches, the effectiveness of prosperity investments will once again increase. This year, the A-share market is not lacking in earnings clues, and after the "rebalancing" of structures following the release of liquidity, it will be better to position oneself in directions with low performance by searching for indications of earnings, which will offer better risk-reward choices. Risk warning: Economic data fluctuations, policy easing lower than expected, rate cuts by the Federal Reserve falling short of expectations, escalation of geopolitical tensions, etc.