This Week's Review: Thoughts on Asset Reallocation Amid Volatile Downtrend

Last week, I already reminded everyone that the probability of this round continuing to surge higher is very low. Looking at this week's trend, the S&P 500 has continued to pull back, with the core drag coming from the Nasdaq. The reason it's extremely difficult to reach new highs in the short term is that unless there is a major stimulus beyond expectations, the market lacks new upward momentum. Current macro data such as employment and CPI have not deteriorated significantly, so the problem is not at the macro level, but rather within the internal structure of the tech sector.

In January this year, Anthropic launched agent plugins, beginning to penetrate professional fields such as law, sales, and finance, posing a substantial impact on the business models of traditional SaaS companies. This may seem like just a change in a software sub-sector, but it is actually shaking the valuation foundation of the entire tech sector. Market sentiment has gradually shifted from "AI empowerment" to "AI disruption." What institutions are truly worried about is whether traditional software companies will become the "Nokia" of the AI era. Once this logic is widely accepted, capital outflow will be systematic, not just a simple technical correction.

In the past, the core valuation of SaaS companies lay in "user count × unit price × retention rate," essentially charging per head. But when AI can replace multiple entry-level positions, the demand for account numbers naturally declines, and the valuation logic begins to shift towards "volume of tasks completed by AI × profit per task + data premium." If a company cannot prove that its AI has a clear advantage in industry data, then the so-called data premium will approach zero. The result is that the price-to-sales ratio may compress from 15–20 times to 8–10 times, and the PE may fall from 30 times to 20 times or even lower. This is not ordinary volatility, but a systematic revaluation brought about by a decline in Beta.

Different types of companies are affected to varying degrees. Tax and accounting software companies like $Intuit(INTU.US) are being redefined from high-growth platforms to efficiency tools, facing a downward shift in their valuation center; legal database companies like $Thomson Reuters(TRI.US) are shifting from content monopoly premiums to AI training data providers, with declining bargaining power; credit rating agencies like S&P Global and $Moodys(MCO.US) still possess the moat of licenses and legal liability endorsement, making them relatively more defensive, but their data and consulting premiums will be weakened; while CRM companies like Salesforce may see their growth attributes decline if enterprises reduce their reliance on accounts in the future, potentially repositioning their valuations as value stocks. Institutions typically apply a 25%-40% discount to companies highly reliant on per-head fees, with the overall supply chain value adjustment potentially reaching 30%-45%.

Against this backdrop, the focus of investment is not on catching every rally, but on avoiding foreseeable risks. The valuation restructuring of the software sector is not yet complete, and recklessly bottom-fishing carries high risks. I am currently adopting a relatively cautious asset allocation, with about half in cash and half in equities, including a small short position. The strategy leans towards deploying at highs, quick in and out, rather than holding for the long term. US stocks often rise slowly and fall rapidly. Before the valuation system stabilizes, it's not advisable to linger in the fight.

For the broader market, the probability of weak and volatile conditions over the next two to three months is relatively high. There may be rebounds during the process, but the overall center of gravity is shifting downward. Relatively speaking, sectors worth more attention are those with solid demand support, such as high-cash-flow consumer sectors, AI infrastructure and hardware, gold and silver, pharmaceuticals, mineral resources, and the automotive industry chain. The relative resilience of the Dow Jones Industrial Average is essentially a reflection of capital structure rotation.

At this stage, it is not suitable to chase highs, nor is it suitable to blindly bottom-fish software stocks. The valuation system has already changed, and the market has not yet fully digested this reality. It's better to miss out than to make a mistake.