The financial market has seen a resurgence over the past week, with significant gains observed in several key indices, particularly the Sci-Tech Innovation Board, the CSI 1000, and the ChiNext IndexAs of Friday's market close, the Shanghai Composite Index registered at 3326.46 points, reflecting an increase of 1.81% for the weekSimilarly, the Sci-Tech Innovation Board climbed to 1007.39 points, marking a 3.92% riseThe upward trend in these indices suggests a rebound in investor confidence, hinting at a more positive outlook for the economy.

A closer examination of the various sectors reveals that 28 of the 31 primary industry sectors posted gains during this weekNotably, sectors like textiles, apparel, retail trade, and light industry manufacturing showed particularly strong performanceThis growth can be attributed to rising expectations surrounding potential stimulus policiesIn contrast, sectors such as coal, public utilities, and non-ferrous metals faced declines; these are traditionally regarded as defensive sectors and their poor performance reflects a shift in market risk appetite, suggesting that risk-averse capital has been withdrawn from these areas

Overall, the weekly performance across a majority of sectors outstripped that of the preceding week, with 29 sectors either continuing their gains or narrowing their losses, culminating in a relatively robust market environment.

Turning to the fundamentals of the economy, local data released by the National Bureau of Statistics over the weekend revealed the manufacturing Purchasing Managers' Index (PMI) for November, which settled at 50.3%. This marks an increase from the previous months of 49.1, 49.8, and 50.1, leading to a rare three-month consecutive growthThis is a significant achievement as it also indicates that the PMI has remained above the critical 50-point threshold for two consecutive months, signaling an expansion in the manufacturing sector.

Delving deeper into the components of the PMI, it becomes clear that small and medium enterprises are experiencing a noticeable recovery, with intermediate and small enterprises reporting PMI increases of 0.6 and 1.6 percentage points respectively from the previous month

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Furthermore, the improvement in November's PMI can largely be attributed to an uptick in new export orders and overall new orders, which have outperformed production indices, underscoring a recovery in demand—particularly notable is the surge in export orders typically characteristic of year-end trading.

Market analysts speculate that the recent three-month consecutive rise in the PMI is not merely a knee-jerk reaction to short-term export opportunities, but rather an indication of the effective policies introduced since SeptemberThis has led to considerably better performance compared to the previous two years, and if further policy measures are introduced—including commitments from the forthcoming December economic policy meeting and potential reductions in reserve requirements—there is potential for continued improvement in domestic economic data.

From the perspective of corporate earnings, there has been a commendable narrowing of declines in profits among industrial enterprises in October, with the YoY profit drop reported at -10.0%, an improvement from a previous decline of -27.1%. Additionally, revenues from large-scale industrial enterprises saw a minor decline of -0.2%, again improved from -0.9%. Analyzing the structure of earnings, all types of enterprises reported a rebound in profits, notably with the equipment manufacturing sector experiencing a 4.5% increase in YoY profits, demonstrating a significant turnaround

This rebound of profit growth, although still negative, is largely encouraged by the implementation of comprehensive policy measures fostering improved profitability and recovery in profit margins, with keen attention now on whether these policies will meaningfully enhance corporate expectations and subsequently lead to restocking of inventories.

Looking overseas, the core Personal Consumption Expenditures (PCE) index in the United States showed a rebound in October, which supports the Federal Reserve's cautious posture in continuing to adjust interest ratesThe YoY increase of 2.8% aligned with expectations, slightly exceeding the previous value of 2.7%. A month-on-month rise of 0.3% matched earlier projections, primarily propelled by a surge in service prices, which increased at the highest rate since March of this yearThis climb in October’s PCE inflation has led markets to expect the Federal Reserve to maintain a careful approach towards rate reductions, expecting a 25 basis point cut in December.

Minutes from the Federal Reserve's November FOMC meeting indicated a preference among several members for a "gradual" approach to rate cuts, contingent on whether inflation remains elevated

The discussions noted that provided economic data continues to align with expectations and inflation falls to 2%, with employment nearing full capacity, some policymakers argued that uncertainties surrounding neutral rate levels have complicated assessments of monetary policy's restrictiveness, advocating for a cautious reduction in ratesDiverging opinions surfaced, with some members indicating that if inflation continues to remain high, there could be a pause in rate cuts, maintaining rates at a restrictive levelSeveral decision-makers pointed out that concerns of an overheated labor market have diminished since September, indicating resilience in employment trendsThe trajectory for future rate cuts remains contingent on incoming data.

Looking forward, the A-share market concluded November on a high, with all three major indices showing gainsAccording to Wind data, activity in the A-share market continued to escalate throughout November, with cumulative transaction volumes breaking the 40 trillion yuan mark, reaching a new monthly high for 2023.

However, it is crucial to acknowledge that we are currently in a policy vacuum, with intensifying speculative dynamics concerning market expectations

While no significant policies have been enacted recently, the speculation surrounding potential stimulus measures has intensified, causing market fluctuations driven by various narrativesIn such a sentiment-driven valuation landscape, inconsistent investor sentiments may hinder the sustainability of recent gainsAs indices continue to show volatility, diverging opinions are emerging, compelling some investors to transition from a previously unidirectional bullish stance to a more cautious approach focused on profit-taking at elevated levelsFor a new market cycle to emerge, beyond favorable fundamental trends, it remains imperative that policy signals exceed expectations, fostering a collective upward momentum across the marketInvestors should pay attention to emerging opportunities, particularly around the upcoming Central Economic Work Conference, which may favor large blue-chip enterprises, as well as segments within the technology growth sector where technological breakthroughs and expanded demand expectations are anticipated.