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Last Friday, the banking sector plummeted while nearly 4,200 stocks rose, and A-shares closed with a high-volume bullish candle, leading us to believe that as banks fall, everything else thrives! However, on Monday, we were proven wrong as the banking sector rebounded, and the consumer, pharmaceutical, new energy, and technology sectors that led the gains on Friday all plummeted, forming a bearish engulfing pattern, which is arguably the worst trend. Many people started to wonder if the A-share market would follow the same pattern as in July, where it rises for one day at the end of the month and then falls for an entire month to pay off its debts.

Unexpectedly, today brought another twist in the tale; the banking sector opened with a dive, and the old tracks like consumer goods, new energy, and semiconductors rebounded once again. Due to the sharp decline in heavyweight sectors like banking and petrochemicals, the Shanghai Composite Index briefly fell below 2,800 points, but there was no significant panic among investors, as there were still nearly 4,000 stocks rising today, and most investors likely made a profit.

In reality, the Shanghai Composite Index is distorted, as the high prices of state-owned enterprises (SOEs) make it appear inflated, while many individual stocks have already broken below their January lows. What's happening now is just the index paying off its debts by releasing liquidity from the SOEs.

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So, was yesterday's bank rebound just a feint by capital, or is today's rebound in the old tracks a trap? A-shares have made two fake moves in three trading days, and their purpose is indeed hard to fathom. However, there are three clear points: the four major banks are the last bastion of high dividend clusters, and their sharp decline indicates that the high dividend clusters have indeed loosened; the trend of these high dividend stocks from the four major banks has turned downward, while core assets like CATL are bottoming out, and some well-reasoned stocks have already rebounded significantly; the significant rise in core assets is most likely purchased by institutions, either domestic or foreign, as retail investors have neither the desire nor the capability to touch these assets.

Some friends might be panicked, fearing that the sharp decline in banks and other SOEs could drag the A-share market down, causing a one-time drop to the beginning of the year's low, which would be disastrous for individual stocks. There is a possibility of this happening if the market faces a significant crisis, a sharp decline in market risk appetite, or a severe liquidity crisis, leading to a high-level correction and accelerated selling at lower levels. However, another scenario for the sharp decline in SOEs is that high dividend sectors like banks essentially represent the market's defensive stance. If capital flows from high dividends to consumer and technology sectors, it indicates a shift from defense to offense in the market. Consumer stocks could then offset the decline in SOEs, resulting in a stable Shanghai Composite Index and individual stocks beginning to perform.

Let's talk more about high dividends:

Last week, I published several articles criticizing the capital clustering in bank stocks, which led to a severe market style split—while the five major banks continued to reach new highs, individual stocks kept falling. I warned everyone that the so-called "high dividends" are just an excuse for capital clustering and price lifting, and not to be brainwashed by the "high dividend" narrative at high levels. Coal was once the king of high dividends, but after coal prices fell and listed companies' performance exploded, their stock prices also plummeted.Many "high dividend" stocks are inherently cyclical. On the surface, the market seems to be focusing on high dividends, but in reality, it is a combination of a conservative market style and the resilience of the high dividend sector's own performance. Both are indispensable, and even performance is the core. The stock market is a risky investment, and everyone is looking for growth. If the performance of listed companies continues to decline, then high dividends are like a duck without roots.

So, after this round of high dividends, only the five major banks are left. Even the three oil companies have been in an adjustment trend since July. Why? Performance! The performance of the three oil companies is linked to oil prices and oil demand, and they can be said to be pro-cyclical to the global economy. Now that the U.S. economy is weakening and domestic demand in China is sluggish, the future outlook for crude oil is not very clear.

Now, even the five major banks can't hold on. Looking at the interim reports: Industrial and Commercial Bank of China's second-quarter revenue decreased by 8.75% year-on-year, and net profit attributable to the parent company decreased by 0.92%; Bank of Communications' second-quarter revenue decreased by 6.83%, and net profit attributable to the parent company decreased by 5.17%. I won't list the rest.

Yes, the five major banks and public utilities stocks are indeed weakly cyclical, but weak cyclicality is still cyclicality. A two or three-year economic downturn may not have much impact on your financial statements, but a four or five-year downturn will definitely have an impact. Moreover, aren't banks the lifeblood of the real economy? If the real economy is not doing well, can banks continue to do well? Thunder will always strike, and non-performing loans will always rise.

In the short term, the bearish factors for banks lie in the expectation of existing mortgage loans being transferred to mortgage loans and the expected increase in future non-performing loan ratios. Although the president of China Merchants Bank denied the transfer of existing mortgage loans to mortgage loans, the market believes there is a practical necessity for this, which will increase the interest rate pressure on banks. Last year, the reduction of existing mortgage loan interest rates was also dragging on, but it was eventually implemented. In addition, the downturn in the real economy will eventually be reflected in the non-performing loans of banks.

In essence, this round of high dividend trend is a continuation of the 2021 inflationary bull market, supported by the resilience of resource products in the context of global high inflation. If inflation goes down, it means that the prices of resource products have lost their elasticity, so why buy cyclical stocks?

Let's take a look at other important news:

The "Shanghai Municipality's Implementation Plan for Further Strengthening the Promotion of Consumer Goods Replacement with Old for New" was issued. It proposes to support the replacement of household appliances, home decoration, home furnishings, and products suitable for the elderly. For individual consumers who purchase sofas, mattresses, cabinets, bathtubs, toilets, sweeping robots, vacuum cleaners, air purifiers, and other household appliances, home decoration, home furnishings, and products suitable for the elderly that meet the requirements, the specific product catalog will be clarified by the Municipal Commission of Commerce in conjunction with relevant departments. The relevant products are subsidized at 15% of the sales price, and consumers can receive a subsidy once through three mobile payment methods: UnionPay Quick Pass, Alipay, and WeChat Pay, with each subsidy not exceeding 2,000 yuan.

During the trading day, media reported that Jinko Energy, a Chinese photovoltaic module manufacturer, has obtained a U.S. tax credit for its factory in Florida.By the close, the Shanghai Composite Index fell by 0.29%, while the ChiNext Index rose by 1.26%. The Hong Kong Hang Seng Index declined by 0.23%, and the Hang Seng TECH Index increased by 0.29%. The total turnover in the two markets significantly shrank to 0.58 trillion. Looking at the industry breakdown, sectors such as power equipment, computers, home appliances, automobiles, and light manufacturing led the gains, while petroleum and petrochemicals, banking, public utilities, and coal sectors led the declines, with the style of switching from high to low valuations continuing.

I've seen friends say, "It's good that XX has fallen, as the dividend yield is higher now," which feels similar to the new semi-military bull market in 2021 when everyone said it was great for the new energy sector to fall, as the valuations became cheaper. But what happened? It became so cheap that even dogs wouldn't look at it.

Although the dividend yield and valuation are two completely different indicators, with valuation focusing on expectations and growth potential, the imagery is quite similar.

Friends with such thoughts should understand some issues:

Are we buying because of rising stock prices or for the dividend yield? If it's for the dividend yield, why didn't we buy when the stock price hadn't risen and the dividend yield was higher? And for those who genuinely want to collect dividends, can they accept a 20-30% stock price adjustment?

Does a falling stock price really mean that the dividend yield is increasing, what if the net profit of the listed company is also declining? What about those who are selling at high positions now? Many of them originally intended to hold for dividends, but the stock price increase in one year has cashed out the dividends for ten years. They have achieved their goal, but we might have to pay back the dividend debt when we buy in.

It's like those who bought into new energy in 2021; they were optimistic about the future prospects of new energy, but those who were already on board had already consumed the growth for the next five years. If you get on the train now and say you are optimistic about growth, what follows is a long journey of debt repayment. This is the difference between riding in a sedan chair and carrying one; when those carrying the sedan chair are all sitting, who will carry it? There's really nothing new in the stock market, it's all about rotation and switching!