AI Capital Expenditure and Dollar Liquidity Shape Market Rebalancing

According to PANews, the potential for a macroeconomic acceleration remains limited, relying heavily on affluent households and AI-driven capital expenditure. Investors are advised to focus on semiconductors and AI infrastructure as long-term growth drivers while maintaining caution towards broad-based indices. The concentration of tech giants masks market vulnerabilities, and the dollar's trajectory could determine the continuation or end of the current cycle. The market reflects a dual-track economy, where the top 10% of earners contribute over 60% of consumer spending, leveraging wealth from stocks and real estate. Meanwhile, inflation erodes the wealth of middle and lower-income families, creating a gap that explains the coexistence of economic 'reacceleration' and labor market weakness. Federal Reserve policies pose narrative risks, with policy volatility becoming the norm. The Fed faces a dilemma between strong GDP data and resilient consumer spending, justifying a slower pace of rate cuts, and the risk of 'growth panic' if rate cuts are delayed. Historically, rate cuts during strong earnings, as seen in 1998, extend bull markets, but the current cycle is distorted by persistent inflation and the dominance of the 'Big Seven' tech stocks. In a nominal growth environment, asset selection is crucial. Investors are advised to allocate scarce physical assets like gold and key commodities, and productivity platforms such as AI infrastructure and semiconductors, while avoiding over-concentration in trendy stocks. The future leans towards a structural bull market rather than a broad rally. The housing and stock markets' performance impacts consumer sentiment. A simultaneous downturn could erode the psychological 'wealth effect.' The real estate market experiences short-term rebounds with rate cuts, but structural challenges persist, including demographic pressures, student loan repayments, and regional economic disparities. Dollar liquidity is a hidden pivot, with a strong dollar potentially impacting weaker markets before the U.S. An underestimated risk is the contraction of dollar supply, with tariffs reducing trade deficits and limiting global dollar flow back to U.S. assets. Despite high fiscal deficits, reduced foreign buyers of U.S. Treasuries highlight liquidity mismatches. CFTC data shows record dollar short positions, indicating potential short-covering that could impact risk assets. The financialization cycle is nearing its end, with economic policies designed to maintain stability before key political events. Structural inequality fuels populist pressures, prompting policy changes across sectors. The market's dual nature, with concentrated tech stocks, supports valuations but also embeds vulnerabilities.