Market performance remained strong last week, continuing its upward trajectory driven by the resonance between financial and technology heavyweight stocks. Large-cap technology leaders emerged as the primary gainers, with domestic semiconductor stocks leading the charge. Meanwhile, non-banking financial sectors strengthened significantly, pushing indices to new heights. The Shanghai Composite Index returned to the 3,800-point level for the first time in a decade, while the STAR 50 Index surged 8.6%, reaching a three-and-a-half-year high. Sector-wise, all first-tier Shenwan industries posted gains last week, with telecommunications, electronics, and conglomerates performing relatively well, while pharmaceuticals, coal, and real estate lagged behind.

**Macro Analysis: Powell's Dovish Comments Strengthen Overseas Rate Cut Expectations**

Domestically, fiscal policy continues to demonstrate unwavering commitment to economic support. This is evidenced by the State Council's continued emphasis on policies to further stabilize short-term economic trends, particularly in addressing ongoing difficulties and challenges. The government has clearly identified "service consumption" and "dual priorities" as the two main pillars of current macroeconomic policy, while explicitly stating the need to "take strong measures to consolidate the real estate market's stabilization and recovery momentum" and emphasizing "deep advancement of unified national market construction to continuously unlock super-scale market dividends."

Media reports indicate that special financing instruments, established with participation from national policy banks and supported by central bank funding, will provide capital supplementation for national strategic infrastructure and key industrial projects or bridge funding for special bond capital. According to disclosed information, this year's funding scale amounts to 500 billion yuan, focusing on emerging industries and infrastructure, specifically including digital economy, artificial intelligence, low-altitude economy, consumer sectors, green and low-carbon initiatives, agriculture and rural areas, transportation and logistics, and urban infrastructure.

Considering current macroeconomic conditions, China clearly presents a macro combination of weakening reality coupled with strong policy support expectations. July data showed reduced fiscal dependence on non-tax revenue, with expenditure continuing to rise year-over-year despite high base effects, driven by revenue growth. August high-frequency data indicates upstream sector prosperity has improved somewhat, but midstream manufacturing shows divergence, with overall demand lacking elasticity and unlikely to support further upstream price increases.

Overall, demand-side elasticity remains moderate. Under supply-side governance emphasizing "anti-involution" and "unified markets," domestic industrial product prices may gradually establish bottom support, with overall profit elasticity potentially emerging from negative feedback loops. However, genuine profit elasticity for cyclical and manufacturing sectors may require demand-side improvements or further policy guidance. Long-term, downstream manufacturing demand remains weak, limiting further price elasticity, but supply-side policy support continues, suggesting domestic inflation may enter a gradual recovery phase.

Internationally, last week's August S&P US PMI and new housing starts both exceeded expectations, temporarily reducing September rate cut expectations. However, market sentiment was dominated by Federal Reserve Chairman Powell's speech. On Friday, Powell stated at the Jackson Hole Global Central Bank Symposium that "risk balance has shifted," emphasizing employment downside risks and potentially paving the way for September rate cuts. Rate cut trading resumed, driving US stock rebounds while pushing down the dollar and US Treasury yields.

With rate cut expectations rising further, overseas commodities, gold, and US equities advanced simultaneously, reflecting renewed risk appetite. Powell's speech emphasized three key points: 1) Highlighted employment downside risks, noting "once declining, deterioration may accelerate," while persistent inflation upside risks exist but are relatively small; 2) Released relatively clear signals of imminent rate cuts, implying September cuts are likely unless August employment and inflation data significantly exceed expectations; 3) Monetary policy framework adjustments explicitly abandoned flexible inflation targeting in favor of simple 2% inflation targeting, while maintaining focus on labor market "shortages." This suggests poor employment may trigger significant rate cuts, but exceptionally strong employment (beyond full employment) may not necessarily prompt rate hikes. Looking ahead, global equity markets are re-entering a rate cut cycle, potentially welcoming near-term risk appetite recovery; medium-term, with rate cut paths confirmed, re-valuation of various risk assets may be underway.

**Investment Strategy: Continue Focusing on Core Targets**

Currently, liquidity serves as A-shares' core support. Last Friday, Fed Chairman Powell delivered clear dovish signals at the Jackson Hole symposium, reinforcing global liquidity easing expectations. Combined with ample domestic funding, this provides solid medium-term market support.

"Filling valuation gaps" characteristics have become increasingly evident. As noted in last week's report: "Short-term, capital markets have created favorable market atmosphere, with industry development and new productive forces policy support naturally establishing A-shares as a thematic market. Previous margin trading and other active funds' liquidity-driven strength in small and micro-cap stocks continued, but considering upcoming interim report disclosures, medium and large-cap styles with higher earnings visibility may outperform, while indices like CSI 1000 and CNI 2000 may enter consolidation phases. Additionally, with the Shanghai Composite breaking through interim highs, other major indices (such as CSI 300, STAR 50) may also anticipate breakouts, potentially driving strong high-low rotation dynamics and reducing small-cap cost-effectiveness." Last week's rapid STAR 50 advance exemplified this trend, and we maintain our view of strong market rotation dynamics.

Near-term, market primary contradictions stem from momentum and positioning providing different directional signals: 1) Positioning-wise, increasing indicators suggest markets have reached expensive territory. ERP levels are typical examples, with broad-based indices all above two standard deviations, indicating expensive market zones; additionally, broad-based index valuations have become more expensive than 2021 levels, reaching historically expensive 90th percentile ranges. 2) Momentum-wise, short-term market momentum remains upward with marginally expanding volatility, potentially maintaining upward trends, but increasing volatility warrants caution regarding potential market corrections. Traditional historical volatility shows monthly market volatility remains below 15%, maintaining low-volatility gradual advance structures; from broad-based index implied volatility perspectives, most indices' IV began rapidly expanding last week, reaching above 80th percentile historical ranges.

We believe strong sector leadership driven by industrial logic may continue short-term, with potential market adjustment signals emerging when large-caps correct while small-caps accelerate. Post-military parade, if market positioning remains elevated, similar emotional peaks and adjustments seen on October 8th last year may occur, requiring attention to market performance stability, though correction magnitude should remain relatively controlled.

Investment direction-wise, we recommend continuing core target trading, maintaining focus on technology growth momentum plus non-banking financial varieties. Short-term catch-up opportunities include cyclical non-ferrous metals (benefiting from Fed rate cut expectations), event and order-catalyzed defense sectors (parade sentiment may peak), and semiconductor sectors with ongoing industrial catalysts (domestic substitution logic) - all representing aggressive branches of current liquidity-driven markets. Annual perspective suggests artificial intelligence, low-altitude economy, and robotics sectors may retain upward potential. Meanwhile, non-banking financial sector base allocation value persists, recommending sustained diversified positioning.

Past fund performance does not guarantee future results. The above sectors are for illustrative purposes only and do not constitute actual investment advice. Investment requires caution. Markets carry risks; invest prudently.