The vanguard of American stock, NVIDIA's Blackwell chip, may be delayed due to design issues, major financial reports lack highlights, with marginal negative news outweighing positive news, Buffett heavily cuts Apple & cash position hits a new high, Japan raises interest rates + hawkish stance from the Bank of Japan, sharp deterioration in US employment leading to recession expectations, sharp rise in the yen exchange rate causing the arbitrage trading of borrowing yen to buy Mag 7+AI stocks to collapse, Israel and Iran conflict...

It seems that within less than a week, ghost stories in the stock market have erupted, and the market has quickly shifted to a "Risk Off" mode. In the fermentation of this series of ghost stories, the macro trigger is the depreciation of the yen, and the fatal blow was delivered by the sudden surge in US unemployment rate on Friday night, leading to a sharp downturn in market expectations for the US economy, directly turning into recession trades. So, was the US non-farm payroll report on Friday really that bad?

I. Has US employment collapsed?

When the July non-farm payroll data was released, the market was shocked: the new non-farm payroll and unemployment rate data both changed drastically, seemingly indicating that the nonlinear inflection point in employment data that the market has been worried about has arrived. Coupled with accelerated contraction in manufacturing PMI, the market directly turned into recession trades.

Indeed, the addition of 114,000 non-farm jobs in a single month is indeed less than ideal compared to the average of around 170-180,000 per month in the decade before the pandemic. However, there are fluctuations every month, although the Labor Department stated that hurricane weather did not substantially affect the July data, the previous month's hurricane weather caused some people to have issues with going to work, which may also affect the data statistics.

Moreover, looking at the distribution, the construction industry remains very strong in this strong employment cycle, and even the manufacturing sector's performance is still decent. The sectors that have deteriorated marginally recently are the service sectors that Dolphin has been particularly concerned about, with two sectors in the service industry that have suddenly deteriorated very strangely - the information industry and the financial industry.

In various sub-sectors of the information industry, including film, music, publishing, advertising media, telecommunications, as well as basic computing services and network information, all have entered a phase of comprehensive layoffs; in addition, financial services have entered a phase of net layoffs.

Furthermore, in terms of professional sectors, temporary employment services, which were the hardest hit in the previous month, continued to deteriorate in July. In addition to this blue-collar sector, white-collar professional services such as accounting, research, advertising media, etc., have also deteriorated.

This is inconsistent with the micro-level information that Dolphin is currently sensing, such as the widespread restart of hiring in software technology companies, the entry of entertainment companies like Netflix into a new investment cycle, etc. The macro and micro individual perceptions of information are not consistent, coupled with abnormal weather conditions in July, Dolphin believes that it is not necessary to fully trust the July data.

Another is that the unemployment rate in July dropped sharply from 4.05% to 4.25%, but if you look closely at this rise in the unemployment rate, it seems more like an oversupply rather than a sharp drop in corporate hiring demand.

First of all, the total pool of labor supply in the United States, including labor force and non-labor force, increased by a net of 206,000 people in July, reaching a peak in the past eight months. Secondly, within this total pool, the labor participation rate in July increased significantly, rising from 62.6% last month to 62.7%, suddenly providing the market with an additional 290,000 unemployed people.

As the Dolphin previously mentioned, a high proportion of immigrants make up the new labor force in the United States. As the job market gradually balances, it is much easier to control the opening and closing of this valve compared to countries with endogenous population growth preparing for labor supply 15 years later by increasing the birth rate. In addition, immigration itself represents additional social demand, so the increase in the unemployment rate due to oversupply is a different concept from the sharp reduction in labor demand due to differences in corporate profits and expectations.

Based solely on the employment data for July, the Dolphin believes it is not yet time to cry "wolf" for a recession. In the Dolphin's view, the employment and PMI data since July will only bring forward the timing of rate cuts to September, which is already fully priced in by the market. This also aligns with Powell's statement at the July meeting - under consistently good inflation and normal employment data, there is indeed a possibility of a rate cut in September. A market adjustment that does not threaten financial stability is not enough to quickly influence the decision-making process of the Federal Reserve.

II. The real bubble in US stocks, and the uncertainty for Chinese concept stocks

Although the July employment data did not show a drastic decline on the surface, it also does not support the current overvalued expectations of US stocks, especially when looking at the leading companies in the US stock market whose financial reports are mainly showing upward trends in CAPEX+OPEX, downward trends in revenue growth, and EPS being squeezed from both sides.

Looking back at the valuations of the seven sisters - the two major advertising stocks are both trading above 20X PE, even as the economic cycle weakens marginally, with PE ratios in the first half of the year not decreasing but rising; Apple and Microsoft either have single-digit growth rates or teens growth rates, yet their valuations are above 30X PE.

NVIDIA's valuation based on current performance expectations does not seem high, but it implies a linear extrapolation of high prosperity, projecting the valuation two years ahead, which causes significant fluctuations in its stock price even when there are no demand issues, only output progress issues caused by oversupply.

For Tesla, the funds speculating on AI valuations completely ignore the very poor fundamentals of the automotive industry, especially this time the deterioration of fundamentals is not just due to its own product cycle and macro high interest rates, but also due to intensified competition, narrowing gap with competitors, in the Dolphin's view of the valuation logic of the hardware and software dual-line story, without a solid foundation in hardware to support the software story, it is easy to talk big but difficult to sustain.

This is also the time when Dolphin significantly reduced its virtual positions in interest rate-sensitive stocks and shifted funds to US bonds and gold as the US stock market began trading on a soft landing path in late July (details can be found in "Are the "brilliant" small-cap stocks in the US economically sound?").

Regarding the recent trading of US stock market giants, Dolphin tends to see it more as the finalization of negative performance in the US stock market, coupled with the appreciation of the Japanese yen under the backdrop of interest rate hikes and hawkish statements from the Bank of Japan, as well as the weakening of the US dollar. This has led to significant exchange rate fluctuations, causing the basis for arbitrage trading to disappear and resulting in a squeeze on market liquidity.

Among the three dimensions of "killing performance, killing valuation, killing logic" in the context of stock market declines, Dolphin believes that the technology stocks covered mainly fall under killing valuation. There is no fundamental issue with their performance and logic; rather, the market has been overly excited, prematurely factoring in too many AI valuation expectations without giving special consideration to the pressure on financial statements from AI pre-investment periods.

In comparison to the widespread killing of valuations among US tech giants, most Chinese concept stocks have already had their valuation bubbles fully squeezed out. After the stock price declines caused by liquidity issues, attention can be turned to the possibility of a slight fundamental recovery under the logic of US interest rate cuts followed by China. In other words, in this wave of significant fluctuations, Chinese concept stocks may be more resistant to declines. Furthermore, after the decline, with the logic of interest rate cuts both domestically and internationally, the resilience of Chinese concept assets may be stronger.

III. Portfolio Returns

Following a significant reduction in positions in mid-July, Dolphin made no adjustments to the portfolio last week. By the end of last week, the portfolio returns increased by 0.3%, significantly outperforming major market indices such as the S&P 500 (-2.1%), MSCI China (-0.6%), Hang Seng Tech Index (-1.7%), and CSI 300 (-0.7%).

This was mainly due to Dolphin's risk aversion strategy ahead of the earnings season. Two weeks ago, Dolphin had already reduced positions and increased bets on US bonds and gold. As a result, although the equity assets in Dolphin's portfolio did experience some declines in line with the market, the final position turned out to be positive due to the rise in gold and US bond prices.

Since the start of the portfolio testing until the end of last week, the absolute return of the portfolio was 37%, with an excess return compared to MSCI China of 61.3%. From the perspective of asset net value, Dolphin started with a virtual asset of $100 million, which has now risen to $139 million.

IV. Individual Stock Profit and Loss Contribution

Last week, Japan raised interest rates, while the US dollar depreciated in anticipation of lower PMI and employment data. With ups and downs, coupled with disappointing earnings reports from major US tech giants, global markets were mostly in a downward trend, with the only difference being the extent of the decline.

Last week, stocks with significant fluctuations in Dolphin's stock pool are as follows with Dolphin's explanations:

V. Portfolio Asset Distribution

Alpha Dolphin's virtual portfolio holds a total of 10 individual stocks and equity ETFs, with 2 core holdings and 8 equity assets underweighted. The rest are allocated to gold, US bonds, and US dollar cash. As of last weekend, Alpha Dolphin's asset allocation and equity asset weightings are as follows:

VI. Key Events This Week:

This week, the US stock market enters a phase of small and beautiful releases. However, last week, Roblox's slightly lower guidance led to a significant drop in stock prices, indicating the market's strict evaluation of these fully valued growth small-cap stocks.

This week, with the release of mini-giants in the US stock market such as Uber, Airbnb, Shopify, and Unity, the market is likely to prepare for the risk of a second decline in growth stocks brought about by small and beautiful companies.

In addition, the early birds of Chinese assets that have been released early mainly include SMIC, Kweichow Moutai, and Focus Media. These three companies represent whether the traditional semiconductor industry is still lingering at the bottom, and the extent of the downward exploration of individual stocks in the domestic consumption sector.

For the focus points of these companies, Dolphin summarizes as follows:

At that time, Dolphin will first publish performance quick reads, in-depth analysis, breakdown of key data, and meeting minutes on the LongPort platform. Please prepare the app, set up reminders, and be the first to receive Dolphin's quarterly performance analysis. For the Dolphin Research webpage link, please click here.

Risk Disclosure and Disclaimer for this article: Dolphin Investment Research Disclaimer and General Disclosure

For recent Dolphin Investment Research portfolio weekly reports, please refer to:

《Economic and consumption are doing well, will the Fed really cut interest rates in September and cut three times in a row?》

《Are the "brilliant" small-cap stocks in the United States nourished by economic fundamentals?》

《Soft landing of US stocks = hard control by giants + scattering of small retail investors?》

《The head of US consumption is leaking, can we still trade a soft landing?》

[《Deflated social zero, soft landing economy, will it drag down Chinese assets?》](https://longportapp.cn/topics/22032215?app_id=longbridge&utm_source=longbridge_app_share&channel=t22032215&invite-code=276530&locale=zh-CN&community_badge=1&profile_following_followers_activities= 1)

"US Fiscal Spending 'Open Door' While Trading Rate Cuts Requires Caution"

"US Stock Rate Cut Expectations Kill 'Counterattack', Is It Reliable This Time?"

"Hong Kong Stocks Suddenly Change Face, To Escape or to Accept?"

"US Economy 'Financialization', Yellen, Powell Become Gatekeepers of US Stocks?"

"US and Chinese Stocks Retreat Simultaneously, Who Holds the Opportunity?"

"US in 2024, Soft Landing or No Landing" 《Making more money and spending more, why do American residents consume so fiercely?》

《Counting on a big dip in US stocks to get on board? Not very hopeful》

《Low inflation in the United States is not receding, can Chinese concept stocks still rise?》

《Dare not chase after the seven tech sisters? Chinese concept stocks unexpectedly benefited》

《Companies relay to support the economy, the United States will not cut interest rates quickly》《Giants stagnate, Chinese concept stocks rise, is it a swan song or a style switch?》

《In 2024, will the U.S. economy avoid a hard landing?》

《At another critical moment! Will Powell bail out the spendthrift Yellen?》