According to PANews, the current economic acceleration is largely supported by investments from affluent households and advancements in artificial intelligence. Investors are advised to focus on semiconductor and AI infrastructure for long-term growth, while also considering scarce physical assets like gold, metals, and promising real estate markets. Caution is recommended regarding broad index investments, as the dominance of the 'Big Seven' U.S. stocks masks overall market fragility.
The trajectory of the U.S. dollar is crucial in determining whether the current cycle will continue or be interrupted. Similar to the period from 1998 to 2000, the bull market may persist, but with increased volatility, making asset selection key to market success.
The economic landscape is notably divided, with the top 10% income earners contributing over 60% of consumption through wealth accumulation in stocks and real estate. Meanwhile, inflation erodes the purchasing power of middle and lower-income families, explaining the disparity between economic acceleration and a weak job market amid a cost-of-living crisis.
Federal Reserve policies introduce uncertainty, balancing inflation concerns with political cycles. While strong GDP growth and resilient consumption support a slower pace of interest rate cuts, high market valuations could delay rate reductions, sparking growth concerns. Historically, rate cuts during strong earnings periods have extended bull markets, but persistent inflation and uneven corporate performance present challenges.
Asset selection in a nominal growth environment should prioritize scarce physical assets and productivity sectors like AI infrastructure and semiconductors, while avoiding stocks inflated by online hype. The upcoming period is unlikely to see widespread prosperity, resembling more of a localized bull market.
Real estate and consumption dynamics are intertwined, with potential weakening in both sectors impacting the 'wealth effect' that supports consumer spending. Real estate may experience a brief rebound with slight interest rate reductions, but underlying issues persist, including demographic shifts, rising default rates due to the end of student loan and mortgage forbearance, and regional disparities.
The U.S. dollar's liquidity and global positioning are pivotal. A strong dollar amid global economic weakness could affect fragile markets before impacting the U.S. A potential risk is the contraction of dollar supply, influenced by tariff policies reducing trade deficits and limiting dollar repatriation to U.S. assets. Despite high fiscal deficits, foreign interest in U.S. treasuries wanes, potentially causing liquidity issues.
Political and economic factors, along with market psychology, indicate a late-stage financial cycle. Policymakers aim to maintain stability through key political events, while structural inequalities fuel populist pressures, prompting policy adjustments in education and housing. Market reflexivity, with concentrated investments in large-cap stocks, supports valuations but also introduces vulnerabilities.