Following the release of the highly anticipated U.S. July inflation data, market expectations for a September rate hike by the Federal Reserve have cooled. The U.S. Bureau of Labor Statistics reported on August 12 that the July CPI rose 3.4% year-over-year, down from June's 3.5%, while the core CPI, excluding food and energy, increased 2.5%, below June's 2.6%. Month-over-month, the July CPI rose 0.1%, and the core CPI increased 0.2%, in line with market forecasts. The U.S. dollar index fluctuated slightly around the data release, edging down to near 99.72. After the data, bets increased that the Fed would keep rates unchanged in September, aligning with my earlier expectations.

I believe the Fed is in a dilemma and will likely maintain its current stance. With the U.S. midterm elections in November, former President Trump may pressure the Fed to avoid rapid rate hikes that could burst the tech stock bubble. Meanwhile, given persistently high inflation, the Fed is cautious about cutting rates to prevent a resurgence. Thus, keeping rates unchanged seems the most probable outcome, which has a neutral impact on capital markets. The U.S. stock market remains strong, with the three major indices hovering near record highs. This suggests that while an AI-driven tech bubble exists, it shows no signs of bursting yet, but close monitoring is essential. This AI wave represents the fourth industrial revolution, profoundly impacting work and life and driving tech sector rallies. We won't predict when the U.S. tech bubble will burst, as it's impossible to foresee due to various factors. Instead, we can take a wait-and-see approach. As long as U.S. markets avoid a sharp overnight decline, the tech rally remains viable. If a significant drop occurs, consider adjusting positions to hedge risk.

I previously outlined a benchmark: if the Nasdaq drops more than 5% in a single day, consider reducing positions. A decline of around 10% may signal a bubble burst, warranting further risk reduction. In June, the Nasdaq fell nearly 5% in one session, a clear signal to reduce positions. Acting on it would have effectively mitigated losses from the subsequent tech downturn. Other overheating signals emerged then, such as A-share margin balances exceeding 3 trillion yuan, a record high, and the top 5% of stocks accounting for over 45% of trading volume, approaching 50%, indicating overcrowded trades. Public funds' allocation to the electronics sector also hit a record high of over 30%. These were signs of a temporary tech peak, prompting me to recommend deleveraging, reducing positions, and diversifying across tech and dividend-yielding assets.

After over two months of decline, many tech stocks have fallen 30% to 50% or more by early this month. In terms of magnitude and duration, this correction may be nearing completion, setting the stage for a new rebound. The rebound is likely to be led by tech stocks, with the tech rally theme persisting. Sectors that performed strongly in the first half, such as chip semiconductors, computing power, and optical modules, are leading the charge, showing a "strong get stronger" dynamic. Fundamentally, these sectors offer relatively high earnings certainty and investment opportunities, warranting continued focus. Additionally, the innovative drug sector, supported by favorable policies, historically low valuations, and improving half-year earnings, has been one of the best performers since early July, with many leaders hitting new highs this year. This is an opportunity I've repeatedly highlighted.

With crowded trades clearing and market measures rapidly implemented, the A-share market has stabilized and rebounded in August. The Shanghai Composite Index has risen above 3,900 points, with trading volume exceeding 2.5 trillion yuan for four consecutive sessions, as the half-year reporting season opens. The ChiNext and STAR indices show high elasticity, underscoring the tech rally's strength. Continue to monitor tech opportunities. The central bank announced plans to conduct overnight reverse repo operations from August 14 to 19, using fixed rates and quantity bidding, with daily operations not exceeding 600 billion yuan. This aims to manage short-term liquidity, easing potential tightness and providing market support. On August 12, the central bank released its Q2 2026 monetary policy report, analyzing domestic and international conditions, outlining policy directions, and discussing hot topics like major economies' policy adjustments and interest rate mechanisms. Maintaining low rates and ample liquidity supports economic stability and healthy capital market development, boosting current market sentiment.

Overall, the market appears poised for a new upward window, with improving profitability and investor confidence, presenting fresh investment opportunities. The South Korean stock market, which suffered a deleveraging-driven crash, has rebounded strongly. The KOSPI index surged 22% in 10 days, entering a technical rebound. This rally is mainly driven by Samsung and SK Hynix, two major memory chip makers. The saying "success and failure are intertwined" fits: many Korean investors over-leveraged in these stocks, causing a July selloff and multiple circuit breakers, wiping out billions in wealth. Recent government measures to tighten stock leverage and ETFs have reduced margin trading, easing deleveraging pressure and boosting prices. Deleveraging has been my consistent advice. As Warren Buffett said, "Once you use leverage, time is not your friend but your enemy." The recent crash in South Korea, with margin calls devastating many accounts, serves as a real-world warning. Invest with idle cash, avoid betting on a single sector or stock, and diversify across multiple industries benefiting from economic transformation, or use funds with different styles to manage risk and achieve returns.

A recent chart comparing Warren Buffett and "Cathie Wood" over the past decade vividly illustrates the volatility of different investment styles. From 2016 to 2026, Buffett's Berkshire Hathaway accumulated 260% returns, with a 13.9% annualized return and a maximum drawdown of 25.2%, showing a steady upward trend. Cathie Wood, or "Cathie the Wood," achieved 329.8% cumulative returns over 10 years, peaking at 720%, but with a 15.9% annualized return and a maximum drawdown of 80.9%. Value investing aims for stable returns, while betting on a single sector can yield huge gains during upswings but prove devastating during downturns. Few investors can withstand an 80% drawdown. As an investor, would you prefer Buffett's steady growth or Wood's dramatic fluctuations? The answer is clear. A MACD golden cross signal has formed, indicating these stocks are gaining momentum! This article is sourced from a Sina cooperative media outlet and is for informational purposes only, not constituting investment advice. Investors should act at their own risk.