Recent sessions have seen the market oscillate within a corrective phase, with investor confidence requiring additional time to rebuild. The US equities market is experiencing high-level volatility, though its overall trend has not deteriorated. The current pullback can be viewed as an aftershock following the sharp technology sector decline in July, during which many investors sustained significant losses that heavily dampened bullish sentiment. This has necessitated a temporary pause in the tech rally, while sector rotation has accelerated.

The agricultural sector has emerged as a standout performer recently, with the El Nino phenomenon raising concerns about substantial global grain production cuts. This has driven capital inflows into agricultural products, making them one of the strongest sectors at present. From a rotation perspective, technology and traditional sectors often exhibit a clear seesaw effect. In the first half of the year, tech stocks—particularly chips and computing power—outperformed dramatically while traditional sectors corrected. Following July's selloff, many tech stocks declined, which in turn fueled a rebound in traditional sectors including high-dividend plays like coal and banks, alongside baijiu and agricultural names. This frequent style switching indicates a lack of a clear market investment theme, with sector rotation serving as the primary mechanism for gradual recovery.

Back in May and June, when the market witnessed extreme crowding and a collective rush toward tech, I advised adopting a three-step strategy to mitigate risks associated with a potential tech bubble, or at least a deflationary phase. The first step was resolutely deleveraging. At that time, margin financing balances had surpassed the 3 trillion yuan mark, a critical signal of elevated leverage. A decade ago, on-exchange financing stood at 2.27 trillion yuan spread across nearly all stocks; this time, the 3 trillion was concentrated almost entirely in the top 5% of performing shares, creating excessive crowding. Such concentration risks localized stampedes during declines, exactly what unfolded in July. The lesson is clear: never use leverage. The second step was to reasonably reduce positions to manage volatility, and the third was to diversify risk by holding both tech and dividend stocks rather than concentrating on a single sector. The top 5% of stocks accounted for 50% of total market trading volume, a historic high, underscoring the extreme crowding.

As tech stocks cool off, traditional value names are undergoing valuation repairs, a process that may extend further. Many investors have told me that hearing the three-step strategy prompted them to decisively reduce or even fully exit tech positions, sidestepping most of July's decline. Now that the market has corrected, the focus must shift to overcoming panic. We should maintain conviction that this rally is likely not over, with the technology sector remaining its core theme. Following the pullback, AI technology continues to be a key focus for capital, including chips and computing power. The science and technology innovation board deserves close attention, as these are the areas most likely to deliver on earnings in the AI era. The six major tech segments, including chips and computing power, have rallied for over a year and are currently in a consolidation phase. Patience is required until the adjustment completes, after which they may resume their upward trajectory.

Emerging areas such as humanoid robots, commercial aerospace, solid-state batteries, and innovative drugs are still in early conceptual phases without confirmed earnings, making them highly volatile. For these sectors, the approach should be to wait for right-side entry points rather than participating on the left side—that is, avoid jumping in before a trend establishes itself and allocate only when upward momentum begins. These segments often exhibit high elasticity and belong to the AI beneficiary sphere, but their narratives strengthen during rallies and weaken during declines without earnings support. AI hardware has been the first mover in this cycle, while AI software has yet to perform well as application endpoints have not generated earnings or demonstrated clear growth capacity. Ultimately, application endpoints are likely to attract capital attention, as the substantial capital expenditures in hardware need to translate into applications that generate revenue growth to recoup investments. We should closely monitor whether the US tech giants' massive capital expenditures can be sustained; continued spending of over $700 billion annually would signal confidence in AI application earnings, whereas any reduction could presage significant downside in AI hardware.

Market confidence remains fragile, keeping us in a consolidation phase without a fresh rally underway. Maintaining a moderate position is prudent, waiting for right-side signals before increasing participation. The dividend stocks I previously highlighted have performed well, with the four major banks hitting record highs and coal enjoying a meaningful upswing. Dividend sectors suit investors seeking stable long-term returns and serve as effective hedges. By holding both tech and dividend stocks—using tech as the spear and dividends as the shield—investors can reduce portfolio volatility and maintain a better mindset through market fluctuations.

Despite current confidence deficits, the forces supporting this rally remain intact. With traditional industries offering limited opportunities and few attractive investment vehicles elsewhere, the capital market stands as one of the few venues where meaningful action can occur. However, generating solid returns is not effortless; it demands continuous learning, enhanced understanding, and deep appreciation of value investing principles, particularly a China-specific value investing framework suited to the A-share market's realities.

Overseas, the Federal Reserve's September meeting looms, with some investors concerned about potential rate hikes to control inflation. Recent statements suggest that achieving the 2% inflation target is non-negotiable, which effectively rules out rate cuts. Yet with US stocks at elevated levels and President Trump facing midterm elections in November, there is reluctance to hike aggressively. A rate increase that bursts the US tech bubble could inflict significant losses on American households, who hold over 50% of their assets in stocks and funds, potentially triggering a negative wealth effect and hurting Trump's approval ratings. The September meeting is therefore likely to maintain rates unchanged. The US market remains strong at high levels without signs of bubble rupture.

The US government's debt exceeding $40 trillion has drawn warnings from prominent figures, with Bridgewater's Ray Dalio cautioning that a debt crisis could erupt within three years, posing global risks. Rising Treasury yields currently pressure markets by attracting capital from emerging markets, negatively impacting their equity performance. The A-share market is comparatively weaker than US equities, which enjoy global capital flows supporting indices like the Nasdaq. Many of our tech companies lack confirmed earnings, making valuations appear stretched—a key risk point. Future tech investing will likely be differentiated: leaders with genuine orders and earnings may continue to perform and set new highs, while concept stocks without earnings visibility may languish at lows. We must acknowledge the technological gap between Chinese and US tech companies and focus on identifying leaders capable of delivering earnings to truly capitalize on opportunities. Until then, maintaining a moderate position and patiently awaiting the right-side opportunity remains the appropriate course of action.