CITIC SEC released a research report stating that U.S. stocks are likely to experience a slight downward fluctuation leading up to the Federal Reserve's policy meeting on December 10-11, with capital rotating from tech to defensive sectors like healthcare and utilities. Following this, former President Trump is expected to nominate a new Fed chair candidate, potentially shifting market expectations toward a more accommodative monetary policy. As a result, U.S. stocks may rebound in the second half of December, further supported by the implementation of tax cuts for households starting January 1, which could bolster employment and consumption fundamentals.
Sector-wise, CITIC SEC recommends focusing on: 1) U.S. tech stocks with valuations better aligned with earnings; 2) Manufacturing, mid-to-upstream resources, and energy infrastructure (especially nuclear power) benefiting from reindustrialization and policy tailwinds; 3) Defense sectors boosted by fiscal spending; 4) Internet-based diagnostics that may gain from potential healthcare spending cuts; 5) Financials (particularly banks) in a potential rate-cut cycle.
Recent market movements saw U.S. stocks open higher but close lower on November 20, with tech stocks leading declines. The Nasdaq 100 and Philadelphia Semiconductor Index dropped 2.4% and 4.8%, respectively, with high-flyers like Micron, AMD, Lam Research, and Palantir falling over 5%. However, CITIC SEC attributes the sell-off to macro-driven profit-taking rather than panic over an AI bubble burst, especially after Nvidia’s strong Q3 earnings and guidance.
The Fed’s hawkish tone following September’s stronger-than-expected nonfarm payrolls (+119K vs. 51K expected) has fueled tighter policy expectations. Officials like Michael Barr and Beth Hammack emphasized caution against premature rate cuts, while Austan Goolsbee expressed unease about further easing in December. Despite this, labor market signals remain mixed: U3 unemployment rose to 4.4%, while U6 improved to 8.0%, and participation edged up to 62.4%. CITIC SEC notes potential downward revisions to August-September jobs data, suggesting underlying weakness masked by hawkish rhetoric.
Looking ahead, the December Fed meeting may mark the peak of hawkish sentiment, with focus shifting to Trump’s Fed chair nomination. Unless a staunch hawk like Kevin Warsh is picked, markets could revert to pricing policy easing post-decision.
On AI, CITIC SEC dismisses near-term bubble risks, citing robust demand (Google’s token processing surged to 1,300 trillion/month by October 2025) and supply-chain bottlenecks. Commercialization via ads, Agent Commerce, and enterprise solutions is accelerating, with Big Tech capex up 74% YoY in Q3 2025. Debt risks are confined to smaller cloud providers, while NVIDIA and OpenAI’s ecosystem resilience mitigates systemic concerns.
Earnings revisions remain upbeat, particularly in IT and healthcare, while valuation compression (S&P 500 down 4.2%, Nasdaq 100 off 6.5%) reflects multiple contraction rather than profit erosion.
Short-term, institutional participation may wane post-Thanksgiving (November 27), with retail activity picking up. Key data delays (CPI to December 18, PCE postponed) and completed earnings season leave the Fed meeting as the next catalyst. CITIC SEC expects a defensive rotation into healthcare/utilities pre-meeting, followed by a late-December rebound as policy expectations ease and fiscal supports kick in.