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Today saw another significant contraction in trading volume, with the morning session at one point seeing a reduction of over 40 billion. There are still many who believe in the adage "low volume indicates low prices," so the market was stuck in a range-bound movement in the morning, with everyone waiting for the main force of capital to make a move. However, no one was willing to take the initiative, and the index played around with just a few points for half the day. After two o'clock, there was still no sign of the main force of capital stepping in, and some funds could no longer sit still and began to sell off. But just as the mantis stalks the cicada, unaware of the oriole behind, these funds had just initiated a wave of selling when the national team entered the market to buy ETFs. The national team is cunning, picking up shares that are metaphorically "bleeding." Then, other funds also saw the opportunity and entered the market to bottom-fish, leading to a rapid lift in the overall market, with securities and technology stocks gaining strength.

Yesterday, I analyzed with everyone that the A-share market is currently a market of reduced volume, where the existing stock competition is essentially a zero-sum game. Let me update the data: yesterday, foreign capital had a small net outflow of 773 million, with a net outflow of 2.516 billion for the year. In January, the net outflow exceeded 30 billion at its peak, and then foreign capital began to continuously bottom-fish, with public and private funds also increasing their positions, leading to a significant rebound in the A-share market. Therefore, for the A-share market to rise, it requires a resonance of funds. Previously, the national team kept buying, but foreign capital kept selling, which neutralized each other.

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What we are waiting for now is a new round of fund resonance. Public funds are deeply trapped in redemption difficulties and have little initiative. The main entities with room for additional positions are mainly foreign capital, insurance funds, private funds, and retail investors, and the national team has not been buying much these two weeks.

Although the A-share market has been falling, and the market becomes more pessimistic with each drop, everyone has lost hope in the stock market. But I personally still believe in objective laws, what objective laws? The dollar cycle!

Generally speaking, when the dollar is in a tightening cycle, due to the higher interest rates it can offer, it will cause global liquidity to return to the U.S. stock and bond markets, and emerging markets will fall due to a lack of liquidity. If the U.S. economy is strong at this time, it will further strengthen this trend. On the contrary, when the dollar is in an easing cycle, the overall trend will reverse, and the dollar will flow back to emerging markets to pick up cheap shares, and emerging markets will often usher in a corrective market.

The background of the two-year bull market in 2019 and 2020 was the Federal Reserve's interest rate cuts.

Yesterday, I said I am a staunch cyclicalist. Why a "cyclicalist"? Because an individual's brilliance and difficulties are deeply rooted in the trends of the times. Fortunes are made during the Kondratiev wave; when we are in a period of prosperity, especially in front of historical opportunities like the Industrial Revolution, equity division reform, and joining the WTO, even pigs can fly in the right spot, and success comes as easily as drinking water. When in a depression cycle, the dust of the times is a mountain on everyone's shoulders, and we have all felt this in the past two years, so I won't elaborate further.

Therefore, when we are elated by our achievements or disheartened by our difficulties, it is important to look beyond these complex appearances and see that cycles, large and small, are often at play. In the stock market, for 20 years we thought we were earning alpha, but after two years of harsh lessons, we have all come to realize the truth: we were actually earning beta.Looking at the stock market through the lens of cyclical thinking, we come to understand that nothing will keep rising indefinitely, nor will anything keep falling forever. Prosperity is fleeting; the peak is the top, and the trough is the bottom. We are currently at an inflection point in the dollar cycle, and the recent plunge in high-position assets such as U.S. stocks, Japanese stocks, and Korean stocks is due to the loosening of capital concentration during the interest rate hike cycle.

Of course, we do not expect to persuade everyone; humans have always been stubborn, hitting the south wall and not turning back. Just as I believe in cycles, some believe in trends, and the rigidity of thinking is deeply ingrained. If some friends find this reasonable, they should face the current opportunities in the stock market.

After finishing this bowl of chicken soup, let's look at today's heavy news:

Middle East situation escalates

Yesterday, there were new developments in the Russia-Ukraine and Israel-Palestine situations. According to reports, Western countries issued a joint statement on Monday, warning Iran and its allies not to launch attacks that could further escalate tensions in the Middle East. The tension in the Middle East seems to be on the brink of collapse. Sources said on Monday that they are concerned that Iran and its proxies may attack Israel within the next 24 hours in retaliation for the killing of Hamas political leader Haniya in Tehran at the end of last month.

The Commander-in-Chief of the Armed Forces of Ukraine, Serysky, stated at a meeting that the Ukrainian Armed Forces currently control about 1,000 square kilometers of Russian territory, and the Ukrainian military is continuing offensive actions in the Kursk region.

Affected by the escalation of geopolitical games, the market's risk-aversion sentiment has increased. Last night, gold and oil prices soared, while U.S. stocks showed a volatile trend.

Central bank liquidity injection, bond market rebound

After the central bank intervened, the bond market has been falling continuously, especially long-term government bonds, with the 30-year government bond falling by more than 1% yesterday. Today, after the stick, the central bank also gave a carrot, conducting a 7-day reverse repo operation of 385.7 billion yuan, with a winning interest rate of 1.70%, which is the same as before. Because there are 620 million yuan of reverse repos maturing today, a net injection of 38.508 billion yuan was realized.

The Shanghai Securities News published an article titled "The Bond Market Takes Another Step Down, and Long-term Bond Rates are Expected to Return to a Reasonable Range." In addition, according to a report by the Securities Times, the approval process for bond funds is gradually recovering, but regulators require that the duration of newly reported retail bond funds should not exceed two years.Although the bond market has rebounded, I personally feel that the cost-effectiveness of long-term bond allocation is relatively low. On one hand, the focus of regulation is on long-term bonds, and it is unlikely that the recent frequent actions by the management can be adjusted within three days to continue to rise. Even if there are interest rate cuts in the second half of the year, the expectations for long-term bonds are also quite full. On the other hand, long-term bonds are too pessimistic about the expectations for China's economy.

Speaking of the bond market, in fact, under the current context of the Federal Reserve's interest rate cuts, the opportunities for U.S. Treasury bonds are greater. The current yield on the 10-year U.S. Treasury note is close to 4%, and according to institutional calculations, under a soft landing interest rate cut path, the model estimates the 10-year yield center to be at 3.6%. When the Silicon Valley Bank crisis erupted, the 10-year note had once dropped to 3.3% during a similar interest rate cut expectation phase.

However, U.S. dollar-denominated bonds have a high threshold for most people. If there is the intention, one can allocate through U.S. dollar bond funds.

Finally, let's take a brief look at the market. As of the close, the Shanghai Composite Index rose by 0.34%, the ChiNext Index rose by 0.93%, the Hang Seng Index in Hong Kong rose by 0.36%, the Hang Seng Technology Index closed flat, and the turnover of the two markets slightly shrank to 0.47 trillion.

Looking at the industry distribution, industries such as national defense, military, power equipment, electronics, non-bank finance, and communications led the gains, while industries such as food and beverages, pharmaceuticals and biotechnology, coal, home appliances, and real estate led the declines.