Market Overview

The assets that performed well in the third quarter of this year include the Russell 2000 Index, gold prices, financial stocks, and U.S. Treasuries, while the poorly performing assets include Ethereum, crude oil, and the U.S. dollar. Bitcoin and the Nasdaq 100 Index remained almost flat.

For the US stock market, the current market is still in a bull market, with the main trend remaining upward. However, in the last few months of the year, the trading environment will lack performance themes, and both the upside and downside potential of the market will be limited. The market continues to revise down third-quarter earnings expectations.

Recently, the valuation has experienced a correction, but the rebound was also quick, with a price-to-earnings ratio of 21 times still far above the 5-year average.

93% of the companies in the S&P 500 index have reported actual performance, with 79% of them exceeding earnings per share expectations and 60% exceeding revenue expectations. The stock price performance of companies that exceeded expectations is basically in line with the historical average, while the stock price performance of companies that fell short of expectations is worse than the historical average.

Currently, corporate buybacks are the strongest technical support for the US stock market, with buyback activities in the past few weeks reaching double the normal level, approximately $5 billion per day, annualizing to $1 trillion, and this buying power may gradually fade after mid-September.

Large tech stocks have shown weakened performance in mid-summer, primarily due to lowered earnings expectations and a decline in market enthusiasm for AI themes. However, the long-term growth potential of these stocks still exists, and their prices are unlikely to drop significantly.

From October last year to June this year, the market experienced some of the best risk-adjusted returns of this generation, with the Sharpe ratio of the Nasdaq 100 index reaching 4(. To date, the stock market's price-to-earnings ratio is even higher, economic and financial expectations are growing more slowly, and the market has higher expectations for the Federal Reserve, making it relatively difficult to expect the stock market to perform as it did in the previous three quarters. Currently, there are signs that large funds are gradually switching to defensive themes, for example, whether through subjective or passive strategies, funds have increased their holdings in the healthcare sector, which provides defensiveness and AI-independent growth. The expectation is that this trend will not reverse quickly, so it would be prudent to maintain a neutral stance towards the stock market in the coming months.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral Optimism for the Market for the Rest of the Year])https://img-cdn.gateio.im/webp-social/moments-c675476dd97413f93db474e8d4769094.webp(

Federal Reserve Chairman Powell made the clearest statement on interest rate cuts so far at the Jackson Hole meeting, with a September rate cut now a foregone conclusion. He also expressed that he does not wish to further cool the labor market and is increasingly confident about the path of inflation returning to 2%. However, he still insists that the pace of policy easing will depend on future data performance.

Powell's statement this time did not exceed the market's expectations for a dovish stance, so it did not create much of a stir in traditional financial markets. What everyone is most concerned about is whether there is a chance of a single 50 basis point rate cut within the year, but Powell did not hint at that at all. Therefore, the expectations for rate cuts this year have hardly changed from before.

If future economic data improves, the current expectation of a 100 basis point interest rate cut may even be adjusted downwards.

The crypto market reacted strongly to this, possibly due to the excessive accumulation of shorts causing a squeeze ). For example, the recent increase in open interest has been rapid, but contracts often exhibit negative funding rates (. Additionally, the pace at which cryptocurrency investors understand macro news is not as unified as in traditional markets, leading to significant damping of message transmission. Many may not even know that Powell is scheduled to speak at the Jackson Hole conference this week. However, whether the current market environment supports the crypto market in hitting new highs is questionable. Generally speaking, for new highs to be reached, the macro environment needs to be loose, sentiment should be risk-on, and native crypto themes cannot be overlooked. Themes like NFT, DeFi, the opening up of spot ETFs, and meme coin frenzy all count. Currently, the only strong theme seems to be the growth of the Telegram ecosystem. Whether it has the potential to become the next theme will depend on the performance of the latest token issuance projects and the quality of the incremental users they bring.

The surge in the cryptocurrency market is also related to the significant downward revision of last year's non-farm payroll numbers in the U.S. this week. However, this revision was excessive, overlooking the contribution of illegal immigrants to employment, while these individuals were included in the initial employment statistics. Therefore, this correction is not very meaningful. As a result, the traditional market reacted lukewarmly, while the cryptocurrency market viewed this as a sign of substantial interest rate cuts.

From the experience of the gold market, most of the time the price is positively correlated with the holdings of ETFs, but in the past two years, the market structure has changed, and most retail and even institutional investors have missed the rise in gold, while the main buying force has become central banks.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral to Optimistic about the Upcoming Market for the Year])https://img-cdn.gateio.im/webp-social/moments-c20d1fa2f14a9fd14073752e2cd3dc13.webp(

The inflow speed of Bitcoin ETFs has significantly slowed down since April, with a total increase of only 10% in the past five months in Bitcoin terms, which corresponds to its price peak in March. If the risk-free rate of return decreases, it may attract more investors into the gold and Bitcoin markets, which is very likely.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral to Optimistic about the Market for the Rest of the Year])https://img-cdn.gateio.im/webp-social/moments-28c07cb7668a88dc8898c81dc7aecc43.webp(

From the perspective of stock positions, earlier this summer, subjective strategy funds performed quite well, timely reducing positions, and had opportunities for offensive moves in August. Recently, the pace of replenishing positions has been very fast, and the position has returned to the historical 91st percentile, but systematic strategy funds have responded a bit slower, currently only at the 51st percentile.

Short sellers closed their positions during the decline.

In terms of politics, Trump's approval rating has stopped declining, and betting odds are rising. Over the weekend, Trump also received support from Little Kennedy, which could reignite Trump's deals. This is generally good news for the stock market or the crypto market.

Capital Flow

The Chinese stock market has been falling, but funds with Chinese concepts have been experiencing net inflows. This week, the net inflow reached $4.9 billion, setting a new high for the past five weeks, marking the 12th consecutive week of net inflows. Compared to other emerging market countries, China also saw the largest inflow. Those daring to choose to increase their positions against the trend in the current market downturn are either state teams or long-term funds, betting that as long as the stock market does not shut down, it will eventually rebound.

However, structurally speaking, from the perspective of customers of a certain trading platform, there has been a consistent reduction in A-shares since February, with the recent increase mainly in H-shares and Chinese concept stocks.

![Cycle Capital Macro Weekly Report (8.25): Trend Slowing, but Neutral to Optimistic on the Market for the Rest of the Year])https://img-cdn.gateio.im/webp-social/moments-64585bf2523c9889940e1a31b46148a2.webp(

Despite the global stock market rebounding and capital inflows, the low-risk preference money market has also seen inflows for four consecutive weeks, with the total scale rising to $6.24 trillion, setting a new historical high, indicating that market liquidity remains very ample.

Continuously monitoring the financial situation in the United States has basically become a recurring theme every year. The U.S. government's debt could reach 130% of GDP within ten years, and interest expenditures alone will reach 2.4% of GDP, while military spending to maintain U.S. global hegemony is only 3.5%. This is clearly unsustainable.

US Dollar Weakens

In the past month, the US dollar index )DXY( has fallen by 3.5%, marking the fastest decline since the end of 2022, which is related to the market's heightened expectations for a Federal Reserve interest rate cut.

Looking back to the beginning of 2022, the Federal Reserve adopted an aggressive interest rate hike policy to combat inflation, which strengthened the dollar. However, by October 2022, the market began to anticipate that the Fed's rate hike cycle was nearing its end and might even start to consider rate cuts. This expectation led to a decrease in demand for the dollar, causing it to weaken.

The current market seems to be a replay of past years, except that the speculation back then was too ahead of its time, and today the interest rate cut is about to land. If the dollar drops too much, the unwinding of long-term arbitrage trades may resurface, becoming a force that suppresses the stock market.

![Cycle Capital Macro Weekly Report (8.25): Trends Slow Down, but Neutral Optimism for the Remaining Market this Year])https://img-cdn.gateio.im/webp-social/moments-b5f845f7002b74e7f6695a09a6265870.webp(

Two major themes next week: inflation and Nvidia

Key price data includes the PCE) Personal Consumption Expenditures( inflation rate in the United States, the preliminary CPI) Consumer Price Index( for Europe in August, and the CPI in Tokyo. Major economies will also release consumer confidence indices and economic activity indicators. In terms of corporate earnings reports, the focus will be on Nvidia)'s earnings report after the U.S. stock market closes on Wednesday.

The PCE released on Friday is the last PCE price data before the Federal Reserve's next decision on September 18. Economists expect the month-on-month core PCE inflation growth to remain at +0.2%, with personal income and consumption growth at +0.2% and +0.3% respectively, unchanged from June. This indicates that the market expects inflation to continue to maintain a moderate growth momentum without further decline, leaving room for potential downside surprises.

Nvidia Earnings Preview - Clouds Clearing, Expected to Inject Strong Confidence into the Market

NVIDIA's performance is not only a barometer for AI and tech stocks but also for the sentiment in the entire financial market. Currently, there are no issues with demand for NVIDIA, but the key topic remains the impact of the delay in the Blackwell architecture. The mainstream opinion on Wall Street believes this impact is minimal, and analysts generally maintain an optimistic outlook for this earnings report. Additionally, NVIDIA's actual results have exceeded market expectations in the past four quarters.

The core indicators of market expectations are:

• Revenue $28.6 billion, YoY +110%, QoQ +10%
• EPS $0.63 YoY +133.3%, QoQ +5%
• Data center revenue $24.5 billion, year-on-year +137%, quarter-on-quarter +8%
• Profit margin 75.5% flat Q1

The most concerning questions are:

1. Has the Blackwell architecture been delayed?

Some investment banks analyze that Nvidia's first batch of Blackwell chips may be delayed by about 4-6 weeks for shipment, expected to be postponed until the end of January 2025. Many customers have turned to procure H200, which has a very short delivery time. A certain wafer foundry has started mass production of Blackwell chips, but due to the complex CoWoS-L packaging technology used in B100 and B200, there are yield challenges, and initial output is lower than originally planned, while H100 and H200 use CoWoS-S technology.

However, this new product was not included in the recent performance forecast.

Since Blackwell is not expected to enter sales until Q1 2024, specifically in the first quarter of 2025, and NVIDIA has only provided guidance for a single quarter's performance, the delay is unlikely to have a significant impact on the performance in Q2 and Q3 of 2024. At the recent SIGGRAPH conference, NVIDIA did not mention the impact of the delay of Blackwell GPUs, indicating that the effect of the delay may be minimal.

2. Has the demand for existing products increased?

Secondly, the decline of B100/B200 can be compensated by the growth of H200/H20 in the second half of 2024.

According to a prediction from a certain investment bank, the production of the B100/B200 substrate (UBB) has been revised down by 44%. Although deliveries may be partially delayed until the first half of 2025, leading to a decrease in shipments for the second half of 2024, orders for the H200 UBB have significantly increased, with an expected growth of 57% from the third quarter of 2024 to the first quarter of 2025.

Based on this estimate, the H200 revenue for the second half of 2024 is expected to be $23.5 billion, which should be sufficient to offset the potential $19.5 billion loss in revenue related to the B100 and GB200 - equivalent to 500,000 B100 GPUs or $15 billion in implied revenue loss, as well as an additional loss of $4.5 billion in supporting facilities (NVL 36). We also see potential upside from the strong momentum of H20 GPUs, primarily targeting the Chinese market, with shipments potentially reaching 700,000 units in the second half of 2024.