Following a cooling of market sentiment, the technology, cyclical, financial, and consumer sectors each have their own driving logic and pace.

CITIC SEC notes that for the technology sector, the domestic supply chain is focused on the listing of ChangXin, while the North American chain is watching Anthropic's Annual Recurring Revenue (ARR). For cyclical stocks, the situation is one of weak supply and demand with intense upstream-downstream bargaining; a resolution hinges on a US-Iran ceasefire and the reopening of the Strait of Hormuz. For the financial sector, the key turning point is the progress of large capital divestments, with selling pressure potentially easing as indices weaken. For consumer stocks, CPI-driven trading is likely to lag behind PPI trading, and the current PPI trade has been obstructed and remains incomplete. The AI sector operates on its own rhythm and logic. While non-AI sectors may experience capital outflows, their true activation does not depend on a rotation from high to low valuations but on new buyers entering the market following shifts in the macro narrative and environment. For the broader market, the biggest challenge currently is the wavering assumption of a near-term reopening of the Strait of Hormuz, coupled with rising inflation and monetary tightening expectations.

However, many non-AI stocks have recently performed significantly weaker in the domestic market compared to their overseas counterparts, indicating that the domestic market has already priced in negative expectations ahead of time. The first Federal Reserve meeting under Chairman Wash could mark a turning point for pessimism within this negative narrative.

CITIC SEC believes the reopening of the Strait of Hormuz will be a moment to "change the deck of cards" and also represents a critical inflection point for a turnaround in non-AI sectors.

Technology Sector Dynamics

The domestic AI industrial chain has entered a high-valuation "deep water zone." The original scarcity premium may be broken by the listing of ChangXin Memory, triggering a re-evaluation of value within the sector. From a forward P/E perspective for 2026, the domestic GPU segment is at 182x, advanced manufacturing and packaging at 115x, and edge detection equipment at 259x. In contrast, ChangXin's P/E is likely to be much lower, and its appeal is essentially tied to spillover effects from the North American chain (memory price increases). From this angle, the ChangXin listing is highly likely to attract capital away from the domestic chain, representing a shift from the domestic to the North American chain.

The core catalyst for the current North American chain rally is the explosion of AI Agents and the commercial validation by Anthropic (referred to as A-Company), which has temporarily alleviated concerns about AI's lack of return on investment. A-Company's ARR skyrocketed from $90 billion at the end of 2025 to $470 billion by mid-May this year, with month-on-month growth accelerating since March and currently maintaining over 50% monthly growth. More crucially, A-Company's explosive growth at the start of the year fueled the narrative of "Agents consuming the entire software market," leading to a sharp drop in software and SaaS stocks. Under this narrative, the initial ROI of AI capital expenditure is important, partly because it eats into the existing software market pie. However, North American software stocks recorded historic monthly gains in May, as the market seemed to recognize the competitive moats of vertical software companies again—a narrative that clearly conflicts with the earlier one.

Additionally, the market is seeing more B2B enterprises move from a simple "Token arms race" to a focus on "input-output ratio actuarial analysis," seriously examining the relationship between Token costs and actual revenue growth. Despite underlying concerns, as long as A-Company's ARR growth does not slow, the foundation supporting this overseas chain rally remains. On June 2nd, A-Company officially announced it had confidentially submitted an S-1 filing to the U.S. SEC. Perhaps we will not see a significant slowdown in its ARR before the official IPO (which aligns with the interests of all stakeholders). Until then, the North American chain may have another leg up after this round of adjustment.

Cyclical Sector Challenges

In May, the PMI finished goods-raw materials spread reversed from -1.8 in April to 0.7, indicating some downstream finished goods began to accumulate while raw materials started to destock. This reflects both weak terminal demand and reduced willingness to purchase high-priced raw materials. Signs of upstream-downstream bargaining have increased noticeably recently: weak downstream demand leads to waiting for the Strait of Hormuz to reopen and oil prices to fall before purchasing and ramping up production; high upstream costs and low operating rates mean producers are unwilling to cut prices even as finished goods inventory builds, opting instead to further reduce operating rates.

It is foreseeable that production activity will further decline under these conditions, and May's economic data may still look poor. Of course, such cost-driven divergence is often a short-cycle phenomenon that gradually converges as crude oil price levels stabilize. Only when the Strait reopens can supply and demand be replenished simultaneously, making price signals more convincing. More importantly, it would clarify the Federal Reserve's monetary policy guidance, alleviating market fears of forced monetary tightening. Many potential buyers of commodities and stocks may also be waiting for this moment.

Financial Sector Pressure Points

The process of large capital divestments that previously suppressed the financial sector is largely nearing its end. Based on mutual fund annual reports for 2025 and Q1 2026 reports, estimates show Central Huijin's holdings in major A-share broad-based ETFs decreased from approximately 1.49 trillion yuan at the end of 2025 to about 300 billion yuan by the end of Q1 2026, a reduction of about 1.18 trillion yuan in market value. According to daily disclosed ETF unit data, from April 9th to May 27th, the basket of ETFs still held by Huijin in Q1 2026 saw cumulative net redemptions of 374 billion yuan (which cannot be definitively attributed solely to Huijin). The net redemption amounts for various ETFs roughly correspond to the estimated remaining scale of Central Huijin's holdings in Q1 2026.

Recently, it has been observed that as indices weakened, ETF redemption pressure significantly decreased. Since May 28th, key SSE 50 ETFs and CSI 300 ETFs have seen cumulative net redemptions of only 2.3 billion yuan. Based on comprehensive data analysis, it is believed that capital pressure on the financial sector may improve significantly from late June to July, which would benefit the recovery of both absolute and relative returns for the sector. From a valuation perspective, the non-bank financial sector's attractiveness under a PB-ROE framework (ROE percentile 76.9%, PB percentile 6.1%) has already surpassed levels seen before the "September 24th rally" and is approaching levels seen in October 2022.

Consumer Sector Outlook

The slowdown in consumer growth momentum appears to be a global phenomenon. Overseas, it may be due to the impact of large-scale fiscal subsidy rollbacks during 2020-2021, while domestically, it is mainly due to the dual impact of this year's national subsidy phase-out and a high base effect. This round of consumer market performance is unlikely to be driven by "volume" and will more likely rely on differentiation, category expansion, or a general rise in price levels to push it forward.

Since the beginning of the year, PPI has surged year-on-year while CPI transmission has been relatively lagged. Macro-level profit distribution naturally tends to favor upstream raw materials and energy companies, as well as midstream industrial manufacturing sectors with pricing power. The PPI recovery trade, centered on the rebound of industrial products, has not yet officially begun (in fact, the rally that started at the beginning of the year was disrupted by the Middle East war, high oil prices, and tightening expectations), let alone driving the rise of the downstream CPI chain. China's economic cycle-driven transmission of prosperity typically follows a "B-end -> G-end -> C-end" chain. Strategically, it is entirely feasible to wait for PPI recovery to drive industrial enterprise profit expansion and improve government fiscal conditions before switching to the CPI recovery logic.

Market Assumptions Under Scrutiny

Compared to early May (when AXIOS reported that the US and Iran had reached a one-page agreement), market confidence in a rapid US-Iran agreement and the reopening of the Strait has clearly wavered at this stage. There are two key changes. First, Iran's stance on lifting the blockade, removing sanctions, and uranium enrichment is far tougher than expected. Second, the tolerance of both the US and Iran for the Strait's closure has exceeded market expectations. Despite its economy nearing collapse under blockade, Iran, with a high 85% food self-sufficiency rate, can still maintain internal social stability in a wartime state. While the US faces inflationary pressure, its petrochemical industry has greatly benefited, even becoming one of the most important industries driving the US economy this year. In extreme scenarios, the Trump administration could theoretically use executive orders to ban crude oil and refined product exports to suppress domestic prices. After securing the interests of agricultural states and traditional heavy industrial states in the South, Trump's political base remains solid.

The probability of Trump winning both houses in the midterm elections was never high; holding the Senate would already be a significant victory. From this perspective, under the current macro conditions, the market seems to have overestimated the constraining effect of the midterm elections on Trump. Under this narrative, the Strait blockade could very well persist for another 1-2 months or even longer. This continuously fuels market expectations for inflation, monetary tightening, and demand recession, with a particularly severe impact on non-US economies. However, a strong stock market seems to be Trump's current main source of confidence. A sharp drop in US stocks and long-term interest rates breaking through key resistance levels could be factors prompting him to accelerate progress on a US-Iran ceasefire and the reopening of the Strait.

Divergent Performance of Non-AI Stocks

The global divergence between AI and non-AI sectors has indeed intensified, and expectations for inflation and demand recession do exist, but this is a global phenomenon. Since April, for non-AI stocks, A-shares have generally performed weaker relative to their overseas counterparts. Even for dual-listed A+H shares, Hong Kong-listed shares have performed noticeably better than their A-share counterparts. This is purely an issue of confidence and capital preference, not liquidity. The domestic market is clearly trading the negative macro narrative more cautiously and earlier than overseas markets.

Since May, for some representative leading companies in non-AI sectors, US-listed companies have averaged about 10 percentage points of excess return relative to their A-share counterparts. For some representative comparable pairs, such as CATL H-shares vs. A-shares, First Solar vs. LONGi Green Energy, Eli Lilly vs. Jiangsu Hengrui Medicine, Freeport-McMoRan vs. China Molybdenum, the single-month excess returns in May reached 25.4, 75.2, 34.7, and 18.6 percentage points, respectively. Even for sectors ostensibly affected by monetary tightening expectations, US-listed stocks have clearly outperformed their A-share peers. Taking copper as an example, Freeport's production this year is clearly under pressure with delayed restarts, while Chinese copper producers' market share is increasing. Coupled with copper prices near historical highs, A-share miners should theoretically have the advantage. However, the reality was Freeport up 20.7% in May, while China Molybdenum gained only 2.1% and Zijin Mining fell 8.9%. A similar story repeated in rare earths (MP Materials +37% vs. China Northern Rare Earth +4%) and gold (Newmont +1.1% vs. Shandong Gold -29%).

Of course, one can always find multiple reasons post-facto to argue why these non-AI A-shares have recently underperformed their overseas peers, but the undeniable fact is that A-shares have clearly priced in all possible negative narratives in advance, while their US-listed peers only began to fall from highs as recently as Friday. From this perspective, when the negative narrative reverses, the recovery for these non-AI A-share targets may come earlier and potentially have greater upside.

The Strait as a Critical Catalyst

The reopening of the Strait of Hormuz is the next most important variable affecting economic activity, monetary policy expectations, and liquidity expectations. It can change the current "AI-only" single-focus narrative, bringing diversified factors to the market—akin to "changing the deck of cards." Currently, both the US and Iran seem to have sufficient tolerance for the closure. However, for Trump, as US stocks continue to adjust, tightening expectations rise, and long-term bond rates break through key levels, the urgency to advance the first-phase agreement and reopen the Strait of Hormuz is increasing.

The AI rally itself also needs consolidation, especially as capital rotation triggered by the ChangXin Memory listing may siphon funds from some existing high-valuation tech stocks. This would all contribute to the recovery of some non-AI sectors. Regarding allocation strategy, the recommendation to maintain an AI + energy/chemicals structure is reiterated. At present, it is necessary to pay attention to the value emerging from the declines in new energy, chemicals, non-ferrous metals, and power equipment, while increasing allocation to undervalued securities and insurance firms.

For specific broad cyclical commodities experiencing price increases, the景气度 of cyclical growth products like the AIDC chain and lithium battery chain remains sustained. It is advised to focus on the tightest supply-demand segments, mainly including tin, tantalum, glass substrates, power devices, diesel generator sets, gas turbines, carbon fiber, and cables. For traditional cyclical commodities, the focus should be on those experiencing real systematic capacity elimination or with absolute supply constraints, such as polyester, spandex, phosphate chemicals, MDI, dyes, glyphosate, rubber, and refrigerants.

Risk Factors

These include intensifying Sino-US friction in technology, trade, and finance; domestic policy strength, implementation effectiveness, or economic recovery falling short of expectations; overseas and domestic macro liquidity tightening beyond expectations; further escalation of regional conflicts such as in Russia-Ukraine and the Middle East; and slower-than-expected digestion of China's real estate inventory.