Guosheng: Is the technology stock really down or just pretending?

The macro bear market team of Guosheng released a research report stating that in the short term, global liquidity will face substantial constraints on interest rate hikes, indicating that assets with growth style such as technology stocks are likely to face a "real adjustment"; in the medium term, given the strong industry trends and performance support of this AI-driven technology market, combined with the fact that the Fed's interest rate hike is actually hindering many things, and the overall trend between the US and Iran is trending towards easing, after the adjustment of technology stocks, it should be an opportunity to reposition, closely watching these 4 key points: progress in US-Iran relations and oil price trends, May US CPI data (June 10th), major central bank interest rate meetings in mid-June, Powell's first public appearance (June 18th). Guosheng stated that US non-farm payrolls in May continued to significantly exceed market expectations, with previous values being significantly revised upward, and the unemployment rate has remained stable for two consecutive months. The latest expectations show that the probability of a Fed rate hike has increased significantly, and pricing has begun for a rate hike in the fourth quarter. The ECB and BOJ are also likely to raise rates at their mid-June meetings. In fact, the current high oil prices have continued for more than three months, and the market is mainly trading on expectations of rate hikes, but has not yet actually traded on the fact of rate hikes, which is the "grey rhino" risk of high oil prices. As seen after the release of this data, US bond yields and the US dollar rose significantly, while US stocks and gold plummeted. Event: On June 5th at 20:30 Beijing time, the US Department of Labor released the May non-farm payroll data. 1. In May, the US added 172,000 non-farm jobs, far exceeding the expected 88,000. The May unemployment rate was 4.3%, in line with expectations and the previous value. The non-farm payroll for March and April was revised upwards by a total of 93,000. Among the 14 industries, 10 industries saw job growth while 4 saw declines. The leisure and hospitality sector (+70,000) made the largest contribution; the financial industry (-22,000) had the largest negative impact; government employment (+52,000) increased significantly, mainly from local government (+55,000) employee growth. 2. After the non-farm data was released, US bond yields and the US dollar rose, while US stocks and gold fell, and expectations of a rate hike heated up. The current interest rate futures have fully priced in one rate hike this year, with a 63% probability of a rate hike in October 2026. The text continues: 1. In May, the US non-farm payroll significantly exceeded market expectations, while the unemployment rate remained stable for two consecutive months. Overall performance: The US added 172,000 non-farm jobs in May, far exceeding the expected 88,000. The May unemployment rate was 4.3%, in line with expectations and the previous value. The May labor force participation rate was 61.8%, in line with expectations and the previous value. The average weekly hours in May were 34.3, in line with expectations and the previous value. The month-on-month average hourly wage in May was 0.3%, higher than the previous value and in line with expectations. In terms of data revision, the number of non-farm jobs added in March was revised up from 185,000 to 214,000, and in April, it was revised up from 115,000 to 179,000, totaling an upward revision of 93,000. Itemized performance: Looking at individual industries, out of 14 industries, 10 industries saw job growth while 4 saw job declines. Specifically, the leisure and hospitality sector (+70,000) made the largest contribution, with resilience still present in household service consumption, although there may also be demand driven by the US, Canada, Mexico World Cup behind it; education and health care (+40,000) continued to provide stable support, with healthcare contributing 35,000; the construction industry (+17,000) continued to grow, possibly driven by data centers, energy, and AI infrastructure construction, with non-residential construction (+2,000) employment increasing for seven consecutive months, currently accounting for 2.3% of total US construction spending; manufacturing (+7,000) saw a slight positive turnaround. The negative contributions mainly came from the financial industry (-22,000), and information industry (-2,000), US technology and financial companies are still continuing layoffs; wholesale trade (-4,000), retail trade (-1,000) also showed weak performance. In addition, government employment (+52,000) increased significantly, mainly from local government (+55,000) employees, developments need to be continuously monitored. 2. After the non-farm data was released, US bond yields and the US dollar rose, US stocks and gold weakened, and expectations of a rate hike intensified. Asset class performance: After the release of the non-farm data, US bond yields and the US dollar rose, while US stocks and gold weakened. As of the close of June 5th, the Dow Jones Index, Nasdaq Index, and S&P 500 Index fell by 1.35%, 4.18%, and 2.64%, respectively, with the 10-year US bond yield rising by 5 basis points to 4.52%, the US dollar index rising by 0.66% to 100.08, and London gold now falling by 3.25% to $4,328.92 per ounce. Change in rate cut expectations: After the release of the non-farm data, the market's expectations for a Fed interest rate hike have significantly increased. The number of rate hikes implied by interest rate futures for December 2026 rose from 0.67 to 1.03, fully pricing in one rate hike this year, with a 63% probability of a rate hike in October 2026; the peak expectation for rate hikes in July 2027 rose from 1.23 to 1.73. 3. "Grey rhino" risks are gradually emerging, and focus on these 4 key points in the short term. Will major central banks around the world raise interest rates? As of June 5th, the overnight index swap (OIS) market shows that there is a high probability that the ECB and BOJ will raise interest rates at their June meetings. For the US, the significantly better-than-expected non-farm data for May, along with the notable upward revisions to previous values, indicate that the US labor market remains resilient in the short term. At the same time, with oil prices remaining high recently, the US-Iran situation still complex, global supply chain pressures remaining high, and energy prices rising, risks are increasing in transmitting to the transportation, production, and service sectors, and inflation rebound pressures should not be underestimated. From the statements of Fed officials, the Fed sentiment index also shows a stronger hawkish attitude recently, with policy focus on inflation risks rather than slowing growth. Against the backdrop of a resilient economy, low unemployment, and unresolved inflation risks, there is no urgent need for the Fed to cut rates in the short term, and further decline in oil prices is a necessary condition for reopening the rate cut window. It is more likely that the Fed will continue to maintain a wait-and-see stance this year, with the conditions for a rate hike needing further confirmation. If inflation and employment continue to exceed expectations in the future, the market will continue to trade on rate hike expectations, and the possibility of actual rate hikes cannot be ruled out. Is the adjustment in technology stocks a "real correction" or a "fake fall"? In fact, the current high oil prices have continued for more than three months, and the market is mainly trading on expectations of rate hikes, but has not yet actually traded on the fact of rate hikes, which is the "grey rhino" risk of high oil prices. As seen after the release of this data, US bond yields and the US dollar rose significantly, while US stocks and gold fell. In the short term, global liquidity will face a substantial constraint on interest rate hikes, indicating that assets with growth style such as technology stocks are likely to face a "real adjustment"; in the medium term, given the strong industry trends and performance support of this AI-driven technology market, combined with the fact that the Fed's interest rate hike is actually hindering many things, and the overall trend between the US and Iran is trending towards easing, Guosheng tends to believe that after the adjustment of technology stocks, it should be an opportunity to reposition. Short-term focus on these 4 key points: 1) Continued focus on the progress of US-Iran relations and oil price trends. Both not only affect short-term inflation trends, but also will determine when the rate cut window can be reopened. At the same time, as global oil inventories continue to be depleted, the US-Iran situation may also be approaching a critical point; 2) May US CPI data. With employment strengthening again and oil prices remaining high, the market and the Fed's focus has shifted to whether inflation will rise again, particularly the transmission of energy prices to core goods and services prices; 3) Mid-June major central bank interest rate meetings. The ECB and BOJ are likely to raise rates at their mid-June meetings. As for the Fed, in addition to focusing on adjustments to their growth, employment, and inflation forecasts, and whether the dot plot will further tilt towards "higher for longer," it is also necessary to pay attention to whether Powell will send signals of adjusting the monetary policy communication framework, including whether to weaken the dot plot, forward guidance, and other communication tools, to enhance the flexibility of policy decisions. If there is a change in the Fed's communication mechanism, the market's pricing logic for future interest rate paths will also face a reshaping; 4) Powell's first public appearance. Pay attention to his judgment on the recent inflation rebound, the resilience of the labor market, and the rate path, as well as his selection of indicators for observing future core inflation, core employment, etc., which may become important references for the market to reassess the policy outlook.