Fed Signals More Hikes; AI Investments Accelerate

This heightened correlation suggests that China's market movements are beginning to mirror global, particularly U.S., market trends more closely.

The company maintains its No. 1 position in the global MLB market with a 4.5% share, further solidifying its leadership in the 22-layer-plus MLB market with a 25.3% share. This strong performance is reflected in a 20% revenue growth quarter-over-quarter, with net profit increasing by 35%, significantly boosted by the full operation of its Thailand plant.

Despite ongoing market debates on whether to adjust or accelerate AI investments, China shows no signs of slowing down its drive. Unlike some U.S. concerns about AI risks, China remains committed, viewing it as crucial for maintaining competitiveness against U.S. dominance. The speaker confirmed a lack of 'speed regulation' in Chinese AI investment, indicating continued aggressive funding.

The Federal Reserve recently raised interest rates by 0.25 percentage points, marking the first increase in three years and two months. A significant majority, nearly 90%, of Fed members indicated the possibility of additional hikes. Fed Chair Powell's remarks were notably more hawkish than anticipated, leading 10-year Treasury yields to rise above 5% immediately following the announcement.

While the average forecast suggested a pause, this change indicates that if high inflation persists, the Fed is prepared to raise rates further into next year. This hawkish interpretation underscores the Fed's commitment to tackling stubborn inflation despite solid economic growth.

Investors had largely anticipated a softer stance, especially given his appointment by a more dovish administration. However, his remarks triggered a rapid shift, leading to a stronger dollar, rising bond yields, and a downward trend in major stock indices, contrary to initial expectations for a more filtered message.

This signal from the OpenAI CEO, just two days after he advocated for slowing AI development, suggests a significant reversal. Investors now anticipate a new model or a substantial update at the upcoming OpenAI DevDay, viewing it as a strong endorsement for continued rapid AI advancement.

This pattern suggests a potentially healthier market structure than observed in the 2022 downturn. Additionally, the thinning of Ichimoku clouds points to high volatility and a potential for upward movement, a traditional signal in technical analysis for significant price shifts.

This expansion of liquidity under Powell far surpasses that of former Fed Chair Alan Greenspan. Anticipated further M2 expansion under the current administration could favor risk assets, signaling continued monetary support for the market.

During the Federal Reserve Chairman's Q&A session, stock prices dipped as surprisingly hawkish statements emerged. This reaction is primarily interpreted as short-term speculative capital withdrawing from the market rather than a fundamental shift in investor sentiment. The market's initial disappointment led to profit-taking, but analysts suggest it may not carry significant long-term implications.

He clarified that the Federal Reserve's rate-setting policy is not guided by this theoretical framework.

This assessment is supported by an aggressive downward adjustment of the unemployment forecast to 4.1%. Despite the economy's strength, concerns over inflation persist, creating the potential for further rate hikes if price stability remains elusive.

Despite the Federal Reserve's hawkish stance, the dot plot provides some optimistic indicators, suggesting interest rates are unlikely to exceed 4.5%. This projection, coupled with a forecast for long-term rate declines by 2027-2028, offers a glimmer of stability. Robust employment figures further mitigate immediate recession fears, and the semiconductor sector is showing relative resilience despite overall market volatility.

This elevated industrial base, combined with potential corporate value reforms like commercial code amendments, creates a powerful synergy. The current momentum is drawing comparisons to the optimistic period of the 2002 World Cup, with Korea also strategically positioned within the U.S. supply chain for critical sectors such as shipbuilding, batteries, semiconductors, and defense.

The criteria focused on firms with an Operating Profit Margin (OPM) exceeding 10% and projected next year's OPM growth greater than 1%. In an uncertain macroeconomic environment, strong earnings are considered the most reliable indicator for potential multiple expansion.

While strong earnings could potentially boost estimates and lower the P/E ratio, creating merit from a PEG perspective, the company struggles to achieve significant PEG growth. This challenge is also observed in peers like Murata and Ibiden, suggesting a broader industry trend where independent upside potential is constrained by correlation with memory chip performance.

Although Nvidia's profits surged from 2023, its earnings growth substantially decelerated by the second half of 2024. The memory industry faces even lower quarter-over-quarter growth expectations, around 10%, compared to Nvidia's 20%, suggesting a more challenging path. Fundamental earnings growth remains the primary driver for memory chip stocks to recover toward previous highs, mirroring Nvidia's journey through significant 20-40% drops.

The competitive dynamics in the High Bandwidth Memory (HBM) market are shifting from a single dominant player to intense rivalry among the top three manufacturers. This change challenges the previous growth narrative, which often assumed a sustained monopoly, particularly by SK Hynix in HBM3. Investors must now recalibrate expectations for explosive growth, recognizing that the market is no longer solely driven by one company's exclusive lead but by broader competition.

Historical evidence demonstrates that HBM contracts have been renegotiated when spot prices for general DRAM fall, indicating a direct link. The assumption that HBM prices will remain decoupled from downturns in the broader DRAM market is not guaranteed, posing a risk to sustained high profitability.

Despite significant technical advancements in base dies by memory manufacturers, Nvidia retains ultimate control over HBM design specifications and the broader ecosystem. Nvidia's formidable power as the primary buyer inherently keeps the valuation multiples of memory manufacturers low. This dominance, coupled with a lack of strong shareholder return policies from Korean memory firms, continues to constrain investment value within the sector.

The market has effectively priced in approximately two additional rate hikes, suggesting that further potential for yield decline remains. This outlook is based on an analysis of current market pricing and historical reactions to similar monetary policy signals.

Historical patterns from 2020 show similar rallies in November, December, and January, irrespective of whether a Democratic or Republican president was elected. This indicates that a rally is expected across various asset classes, including cryptocurrencies and the stock market, with focus now shifting to identifying the leading sectors for this anticipated post-election surge.