The recent market correction presents a strategic opportunity to position for the next upward cycle. Earlier weekly reports anticipated market consolidation, and this week saw significant adjustments triggered by two primary factors: temporary global liquidity tightening and diverging narratives around the AI industry. Against the backdrop of slowing year-end incremental capital inflows in China, the pullback in valuations and risk appetite has been somewhat amplified. However, as selling pressure eases, we are turning cautiously optimistic, viewing the current adjustment as a prime entry window for the next rally.

1. **Fed Rate Cut Expectations Rebound**: Markets had priced in a December pause, but recent dovish signals from New York Fed President John Williams suggest a potential rate cut or guidance for a January reduction. CME FedWatch now shows a 71% probability of a December cut, up from 30% earlier.

2. **Liquidity Relief Post-Government Shutdown**: The U.S. Treasury General Account (TGA) surge during the shutdown strained dollar liquidity, but resumption of government operations has since eased TGA balances and SOFR rates.

3. **AI Narrative Divergence, Not Collapse**: While overseas AI investments shift focus from computing power to ROI, this reflects pricing differentiation rather than a trend reversal. U.S. AI valuations (e.g., CSP giants at 25–35x P/E, Nvidia at 43.8x) remain far from bubble territory, unlike the 2000 dot-com crash. Meanwhile, China’s AI sector is still nascent, with growth potential as domestic chip supply improves.

4. **Seasonal Capital Inflows Ahead**: December typically sees renewed fund inflows, driven by: - Seasonal peaks in household deposits and insurance "pre-sales" for Q1 allocations. - Foreign capital inflows historically strong from November to January. - Anticipation of China’s Central Economic Work Conference may accelerate a spring rally.

**Sector Strategy**: - **Defensive plays**: Banks and insurance (high dividends, low crowding). - **Growth opportunities**: AI applications (e.g., gaming, advertising), media, computing, and undervalued恒生科技 (12.5% P/E percentile over 5 years). - **Cyclical/thematic picks**: Semiconductors, renewables, and globalized sectors like biotech.

**Risks**: Weak domestic policy impact, escalating U.S. tariffs, or data inaccuracies could disrupt recovery momentum.

Key sectors to watch: Banking, insurance, AI applications, media, computing, defense, agriculture, and coal.