How to view the pullback of AH and US tech stocks

Report Summary

Recently, the U.S. stock market has experienced significant declines due to events such as downward adjustments in growth expectations, upward revisions in inflation expectations, Microsoft cutting data center expenditures, and additional tariffs imposed externally. The MAG7 index has seen a maximum drop of 13.6% since peaking at the end of 2024, as of this Thursday. Meanwhile, on Friday, both Hong Kong stocks and A-shares also underwent substantial adjustments, particularly in the technology sectors that have been popular in recent months, such as robotics and artificial intelligence.

In this article, we discuss several issues:

(1) "MAG7" Market Review: Is this adjustment a "mid-air refueling" or a "trend peak"?

(2) During the "MAG7" adjustment, has there been a style switch, and how to respond?

(3) What are the investment rules of prosperity for the "MAG7" market?

(4) What stage is the technology market of A-shares in, and what is the outlook for the future?

1. "MAG7" Market Review:

Since the upward trend at the beginning of 2023, the MAG7 index has undergone five adjustments; the current adjustment since the end of 2024 is the fifth.

(1) Average of the 1st to 4th Adjustments: The index fell for [35 trading days], and then took [19 trading days] to reach a new high again; as the market progressed, the speed of adjustments became faster, while the speed of reaching new highs slowed down. The 5th adjustment, as of February 27, 2025, has lasted for 47 trading days, with a drop of 13.6%, exceeding the declines of the first three adjustments and approaching that of the fourth.

(2) Causes and Consequences of the Adjustments: The first three adjustments were due to liquidity shocks, while the fourth and fifth adjustments involved fundamental factors. Liquidity disturbances do not reverse the market trend, but fundamental issues may lead to longer periods of adjustment. The first three adjustments were more about correcting overly optimistic liquidity or liquidity shocks caused by risk events such as the Silicon Valley Bank incident in March 2023, bond issuance in the third quarter of 2023, and the yen carry trade in August 2024.

As liquidity issues ease, funds are flowing back into MAG7. In the fourth and current fifth adjustments, fundamental issues have begun to pose challenges

2. Is there a style switch during the adjustment period?

(1) There is a style phase drift during the adjustment period. During the 4th and 5th adjustments, when the impact of fundamentals increased, the reversal of styles became more apparent. For example, during the 4th adjustment, information technology fell by 12.1%, utilities rose by 9.8%, and healthcare rose by 6.0%.

(2) How to respond to style switches during the adjustment period? In adjustment phases with liquidity or event shocks, but where the fundamental trend remains unchanged, style switching may not be necessary. However, in adjustment phases where there are divergences in fundamentals, style switching may be more intense. The risk-averse directions are: first, traditional low-beta sectors such as utilities and consumer staples; second, with interest rates declining, benefiting healthcare and real estate.

3. The investment rules of "MAG7":

The level of prosperity determines the relative return; marginal changes in growth rate determine the turning point of stock prices.

Looking at the MAG7 index's performance over the past two years: from Q1 2023 to Q3 2024, the growth rate accelerated upward, entering a double-click phase; starting at the end of 2024, the growth rate began to decline marginally, entering a consolidation phase; however, whether it will enter a downward trend phase thereafter depends on whether the prosperity level maintains high oscillation or declines rapidly. The consensus expectation for growth in 2025 is expected to drop from the current 55.8% to 31.7%, and further decline to 15.6% in 2026.

From this perspective, it is relatively difficult for MAG7 to continue its upward trend in the short term. In an optimistic scenario, it may maintain high-level oscillation, while in a pessimistic scenario, it may require a long period of oscillation to digest the current valuation. However, among the individual stocks in MAG7, there is significant divergence in profit trends. (Detailed image data of MAG7 can be found in the main text)

IV. What stage is the A-share technology market in:

Investment in the growth sector generally starts with a thematic investment phase, followed by a period of fluctuation and adjustment, and then enters the performance realization phase (prosperity investment phase).

Looking ahead:

(1) The progress of industries such as DeepSeek and domestic robotics has brought the corresponding sector stocks closer to the prosperity investment phase from the thematic investment of the previous two years, or it may lead to an increasing number of sub-sectors, similar to the previous optical modules. Accordingly, each pullback formed by high congestion may be an opportunity for reallocation.

(2) The AI and robotics sectors of AH shares have often worried about the decline of US tech giants ending the opportunities for domestic stocks in the past two years of the "US's unique performance" macro narrative. However, since DeepSeek, the continuously increasing capital expenditure from domestic major companies and the government indicates that there has been progress and a supply chain domestically, reducing the influence of US tech giants.

(3) In the short term, aside from industrial progress, the post-Spring Festival excitement period for small and medium-sized enterprises has further increased risk appetite. In terms of time, the excitement period after the Spring Festival over the past 15 years has lasted about an average and median of 31 trading days, and currently, it has just passed the halfway mark.

(4) From a top-down perspective, at the current stage, low-position cyclical sectors may have some room for catch-up, but the current macro fundamentals and macroeconomic policies are in a "calm" phase, with marginal changes being small and insufficient to attract large amounts of capital. Entering March, the performance and press conferences of major companies (Xiaomi, ByteDance, Tencent) may reveal more industrial progress.

(5) Therefore, the main style of technology is expected to remain largely unchanged. Focus on applications benefiting from reduced inference costs, integrated machines, and localized deployment; in robotics, pay attention to sub-sectors like tendons and electronic skin; for low-position growth, focus on military electronics; for thematic investment, focus on cultural exports and low-altitude economy.

Report Body

Recently, US stocks have significantly declined under the impact of events such as downward adjustments in growth expectations, upward revisions in inflation expectations, Microsoft cutting data center spending, and additional tariffs. The MAG7 index has seen a maximum decline of 13.6% since peaking at the end of 2024. At the same time, on Friday, Hong Kong stocks and A-shares also experienced significant adjustments, especially in the technology sectors that have been popular in recent months, such as robotics and artificial intelligenceIn this article, we discuss several issues:

(1) "MAG7" market review: Is this adjustment "in-flight refueling" or "trend topping"?

(2) During the adjustment period of "MAG7", was there a style switch, and how to respond?

(3) What are the investment rules of prosperity for the "MAG7" market?

(4) What stage is the technology market of A-shares in, and what is the outlook for the future?

1. "MAG7" Review: "In-flight Refueling" or "Trend Topping"

Historically, the market capitalization of the top 7 companies in the U.S. stock market accounts for about 12% of the total market value, with three significant phases of increased share: once in the 1970s with the "Nifty Fifty", once in 2000 with the "Tech Bubble", and the recent "MAG7" (Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, Tesla) over the past two years.

As of the end of 2024, the market capitalization of MAG7 accounts for 25.4% of the entire U.S. stock market and 33.6% of the S&P 500; in 2024, MAG7 averaged a 60.2% increase, while the overall market's average increase was only 11.6%.

Since the beginning of 2023, the MAG7 index has experienced five adjustments. The current adjustment since the end of 2024 is the fifth adjustment. The previous four adjustments were:

First: 2023/2/2-2023/3/10, adjusted for 26 trading days, with the index falling by 6.9%, followed by 5 trading days to reach a new high;

Second: 2023/7/28-2023/10/27, adjusted for 65 trading days, with the index falling by 10.5%, followed by 13 trading days to reach a new high;

Third: 2024/4/11-2024/4/19, adjusted for 7 trading days, with the index falling by 9.1%, followed by 12 trading days to reach a new high;

Fourth: 2024/7/10-2024/9/6, adjusted for 42 trading days, with the index falling by 15.3%, followed by 44 trading days to reach a new high.

On average, for the 1st to 4th adjustments: the MAG7 index fell from peak to trough over35 trading days**, followed by19 trading daysto reach a new high.**

As the market progresses, generally speaking, the speed of adjustments becomes faster, while the speed of reaching new highs becomes slower. In other words, adjustments in the early stages can easily lead to new highs, but as time goes on, it takes longer to reach new highs

The MAG7 Index has undergone its 5th adjustment since December 17, 2024. As of February 27, 2025, it has lasted for 47 trading days, declining by 13.6%, exceeding the decline of the previous three adjustments and approaching the decline of the 4th adjustment.

In the five adjustments of the MAG7 Index, the main reasons for the first three adjustments were liquidity shocks, which were more of a correction to the market's overly optimistic view on monetary policy or temporary liquidity shocks caused by risk events, such as the Silicon Valley Bank incident in March 2023, fiscal bond issuance in the third quarter of 2023, and the yen carry trade in August 2024, rather than fundamental issues.

As liquidity issues ease, market sentiment stabilizes, and funds flow back into "MAG7," while the favorable industrial conditions during this period have also been key catalysts for the market.

However, in the 4th adjustment (July-September 2024) and the current 5th adjustment, fundamental issues have begun to emerge as a concern. In addition to the risk of weakening macro fundamentals, there are also signs of loosening in the MAG7 fundamentals (profitability is difficult to continue exceeding expectations).

In summary, liquidity disturbances or event-driven shocks will not reverse market trends, but fundamental issues may lead to longer adjustment periods or even a trend reversal.


First Adjustment: The trend is diverging, but NVIDIA's adjustment can be ignored. During the first adjustment, the biggest declines were seen in Amazon and Google, while NVIDIA, with the strongest logic, adjusted by less than 5 points and stabilized and rebounded the fastest.

Second Adjustment: The macro and micro liquidity shock lasted longer. The second adjustment lasted longer, with most stocks declining around 10 points, while Tesla, due to industry and its own reasons, saw a maximum decline of over 25 points.

Third Adjustment: A short-term rapid adjustment, but also a quick new high. The third adjustment was brief, with most stocks declining by less than 10 points, while NVIDIA, META, and Tesla had relatively larger declines.

Fourth Adjustment: Fundamental factors combined with liquidity risks, with a long adjustment period. The fourth adjustment lasted a long time, with most stocks declining around 20 points, while META and Apple, which are more application-oriented, showed stronger trends.


Fifth Adjustment: Macroeconomic fundamental risks, combined with weakening second-order profit derivatives. The fifth adjustment has lasted for a month and a half, primarily due to the weakening of macroeconomic fundamentals and changes in the profit expectations of MAG7, shifting from high growth to a normalized growth phase.

II. During the “MAG7” Adjustment Period, Was There a Style Switch and How to Respond

During the adjustment period of the MAG7 index, the market style experienced a phase shift.

On average, sectors such as consumer staples, utilities, and healthcare were able to achieve relative returns, but not necessarily absolute returns.

However, during the fourth and fifth adjustments, where the influence of fundamental factors increased, the reversal and differentiation of styles became more pronounced.

For example, during the fourth adjustment, information technology fell by 12.1%, utilities rose by 9.8%, and healthcare rose by 6.0%; during the fifth adjustment period (as of 20250227), information technology fell by 8.7%, utilities rose by 1.7%, and healthcare rose by 5.8%.

How to Respond to Style Switching During the Adjustment Period?

In the adjustment phase characterized by liquidity or event shocks, but where the fundamental trend remains unchanged, style switching may not be necessary, as sectors outside of technology may not yield excess returns;

**However, in the adjustment phase where fundamental divergences begin to emerge, style switching and differentiation may be more intense, making it necessary to undertake certain hedging operations. There are two directions for selecting hedging sectors: one is traditional low-beta sectors such as utilities and consumer staples, and the other is sectors benefiting from declining interest rates, such as healthcare and real estate**

3. What are the investment rules of the "MAG7" market?

1. The level of prosperity determines the relative return.

Whether it's the A-shares over the past 30 years or the U.S. stocks over the past 50 years, the annual market return is linearly positively correlated with the growth rate of net profit for that year.

2. Marginal changes in growth rate determine stock price turning points.

When the growth rate accelerates upward or during the ROE upturn phase, profit valuation may double (first phase); however, if the stock price reaches a high level (second phase) and the prosperity shows a turning point (absolute growth rate drops below 30% or the marginal decline exceeds 50%), it may face a "prosperity trap," potentially entering a double kill phase (third phase).

Looking at the MAG7 index's performance over the past two years:

From Q1 2023 to Q3 2024, the growth rate is accelerating, and the market enters a double-click phase;

Starting at the end of 2024, the growth rate begins to decline marginally, and the market enters a consolidation phase; whether it then enters a downward trend phase depends on whether the prosperity maintains a high-level consolidation or quickly declines.

The consensus forecast for 2025 shows a decline in growth from the current 55.8% to 31.7%, with further decline to 15.6% in 2026.

From this perspective, it is relatively difficult for MAG7 to continue its upward trend in the short term; in an optimistic scenario, it may maintain high-level consolidation, while in a pessimistic scenario, it may require a long period of consolidation to digest the current valuation.

However, there is significant divergence in the profit trends among MAG7 stocks.

For instance, companies like Apple and Microsoft, which can maintain a stable growth rate, may perform relatively well; while those with a significant decline in marginal growth, such as NVIDIA, Amazon, Google, and META, may face considerable stock price adjustment pressureFor companies like Tesla, which are experiencing low growth and fluctuations, there is significant uncertainty ahead. If profitability can recover, then the stock price has upward elasticity.

4. What stage is the technology market of A-shares in?

Let's first review the optical module market from 2023 to 2024:

In the first half of 2023 (thematic investment): ChatGPT became popular, driving a strong rise in CPO;

In the second half of 2023 (pullback adjustment): The sector's performance gradually entered the realization stage, but affected by the macro environment, it experienced overall fluctuations and declines;

In 2024 (performance realization stage): However, there is significant internal differentiation.

Overall: The first half of 2023 was the thematic investment stage (with limited valuation constraints), while 2024 is the performance realization stage (prosperity investment stage), where leading stocks experience a double boost in profit and valuation (the peak of valuation corresponds to the peak of growth rate).

Generally speaking, investments in growth sectors typically go through a thematic stage first, followed by fluctuations and adjustments, and then enter the performance realization stage (prosperity investment stage), but there is uncertainty regarding whether performance can be realized.

The current market for technology stocks in A-shares is in the thematic investment stage or the early stage of profit realization, and the market will continue to evolve, but subsequent funds will focus more on sub-sectors with high performance realization.

On Friday (February 28), influenced by factors such as Trump's tariff threats, NVIDIA's sharp decline, and Goldman Sachs' bearish outlook on robots, the technology stocks in the AH market experienced significant adjustments, and various opinions regarding technology stocks gradually increased.

Our understanding:

(1) The progress of industries such as DeepSeek and domestic robotics has brought the corresponding sector stocks closer to investment based on prosperity, moving away from the thematic investments of the previous two years, or it may lead to the emergence of more sub-sectors, similar to the previous optical modules. Accordingly, each pullback caused by high congestion may present an opportunity for reallocation.

(2) The AI and robotics sectors of AH stocks have often worried about the decline of US tech giants ending the opportunities for domestic stocks during the past two years of the "US's unique performance" macro narrative. However, since DeepSeek, the increasing capital expenditures from domestic major companies and the government indicate that there has been progress and a supply chain domestically, reducing the influence of US tech giants.

(And the risk appetite of US funds has been affected; since the Spring Festival, TSMC in the US stock market has dropped about 18%, while TSMC in the Taiwan stock market has only dropped about 8%.)

(3) Returning to the short term, in addition to industrial progress, the post-Spring Festival excitement period for small and medium-sized enterprises has further increased risk appetite. In terms of time dimension, the excitement period after the Spring Festival over the past 15 years has lasted about an average and median of 31 trading days, and currently, time has just passed the halfway mark.

(4) From a top-down perspective, at this stage, low-position cyclical sectors may have some room for catch-up, but the current macro fundamentals and macroeconomic policies are in a "calm" stage, with marginal changes being small and insufficient to attract large amounts of capital. As we enter March, the performance and press conferences of major companies (Xiaomi, ByteDance, Tencent) may reveal more industrial progress.

(5) Therefore, the main style of technology is expected to remain largely unchanged. Focus on AI applications benefiting from reduced inference costs, integrated machines, and localized deployments; in robotics, pay attention to tendons and electronic skin; for low-position growth, focus on military electronics; for thematic investments, focus on cultural exports and low-altitude economy.

Authors of this article: Liu Chenming, Zheng Kai, Li Rujuan, Source: Chenming's Strategic Deep Thinking, Original Title: "How to View the AH and US Tech Pullback - A Review of the Bull Market Adjustment of the Seven Giants in the US Stock Market [Guangfa Strategy Liu Chenming & Li Rujuan]"

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstancesBased on this investment, the responsibility lies with the investor