Trump fires globally, is the market entering "Qingming" early?

Hello everyone, I am Dolphin Research!

Over the past two weeks, global equity markets have transitioned from a "sell U.S., buy global" strategy into a broad-based correction phase. The key questions now are: Why has this correction occurred? How long will it persist? And what factors should we monitor next?

1. Is the U.S. economy truly in a recession?

From the perspective of economic fundamentals, whether it's the 150,000 non-farm jobs in February, a 0.3% MoM increase in hourly wages, or both the ISM services and manufacturing PMIs standing above 50, there seems to be no major issues. Even the inflation data that had been a concern—February's core CPI, which increased by 0.23% MoM, also falls within a basically normal range.

Another critical dataset – February's Personal Consumption Expenditures (PCE) – has been released. Earlier concerns arose from January's weak consumer spending; had the weakness persisted in February, it could have strengthened recession arguments.

However, February's PCE rebounded modestly after January's slump. First, examining income sources:

a. Growth in residents' compensation income is basically stable

Seasonally adjusted annualized U.S. personal income increased by $195 billion in February, a significant MoM gain.The increase was primarily driven by $97 billion in transfer payments (government welfare expenditures). Such seasonal fluctuations are typical in January and February due to annual fiscal resets.

The most stable source of income—residents' compensation—added $70 billion in February, which is still at a normal level compared to the past few months.

b. Residents' savings are still increasing, but consumption is not weak

In the flow of expenditures from the newly added income in February, consumption accounted for $88 billion, which rebounded significantly compared to last month. However, a lot of the transfer payments in January and February have flowed into savings and have not yet converted into consumption as expected.

This has also driven a further increase in the residents' savings rate: in February, this figure gradually rose to a savings rate of 4.6%. This means that for every $100 of tax revenue earned by the American public in February, they would save $4.6 (including investments). Although this is still small compared to pre-pandemic levels, it is relatively high compared to the past three years in 2022.

Therefore, the overall result is that in February, U.S. consumer spending did recover from the very poor base in January, but compared to the same period in the past, it is still relatively weak.

Excluding inflation, U.S. personal consumption expenditures increased by 0.1% month-on-month in February (last month saw a rare negative growth of 0.6%), although it's not much, at least it didn't decline.

In terms of categories, service consumption experienced a rare negative growth of 0.15% during this cycle, but goods consumption held steady—durable goods consumption increased by nearly 1% month-on-month, while non-durable goods also saw a positive growth of 0.5% MoM.

Currently, in terms of consumption structure, U.S. goods and services consumption has fully reverted to the pre-pandemic consumption mix. Looking ahead, service consumption is expected to maintain steady growth, while goods consumption—should real estate transaction volumes fail to improve—may depend on the extent of AI-driven upgrades in consumer electronics and automobiles. Based on current trends, consumer spending could indeed weaken.

Coupled with consumer confidence, the upcoming expectations are indeed not optimistic: according to the University of Michigan survey, both the consumer confidence index and the expectations index in the U.S. have declined significantly.

However, it is important to note that consumer sentiment is a subjective indicator, and in severe cases, it can indeed lead to self-fulfilling prophecies. Yet in June 2022, when the interest rate cut cycle began, this sentiment indicator also declined, but the economy stabilized and it recovered.

In fact, the real focus should still be on hard economic indicators—while overall economic data remains relatively stable, there are indeed signs of softening in consumer spending. Moreover, the core PCE price index rose 0.37% month-on-month in February, raising concerns about stagflation. Taken together, weakening consumer spending and resurgent stagflation risks present negative macroeconomic signals for U.S. equities.

II. Why are Chinese concept assets also adjusting?

This macro micro-stagflation logic is slightly negative for the recovery of Chinese concept stocks, but in the view of Dolphin Research, the pullback in Chinese concept stocks is still the result of several combined factors resonating:

a. During the past two weeks of Chinese concept earnings reports, most of the non-AI related Chinese internet assets covered by Dolphin Research, whether it is Meituan, Didi, Kuaishou, or Pinduoduo, have shown relatively flat overall performance As for assets closely related to AI—Tencent, although its performance is good and there are significant capital expenditures in the current quarter, the subsequent capital expenditure guidance is not high, and the total of capital expenditures and dividends repurchases is decreasing. The consideration here is either that they feel their stock price is high or they want to provide some leeway for increasing capital expenditures, but overall this is not a morale-boosting guidance.

However, Dolphin Research noticed that some generally pessimistic consumer stocks are actually not as bad as market expectations, such as Haidilao and China Resources Beer.

b. The rise of Hong Kong tech stocks is similar to Xiaomi announcing a private placement, which affected the upward momentum;

Of course, what really adds insult to injury is that on April 2, Trump announced a plan for blanket reciprocal tariffs on overseas countries. Thus, Trump's Tariff 2.0 has escalated from primarily targeting China to a general reciprocal tariff on "15 countries" and other trading partners, along with industry-specific tariffs.

Although China may not be severely affected this time due to its relatively low domestic VAT rate and the prior announcement of a 10% + 10% tariff rate, Trump's actions may impact global economic growth expectations, and the current market is overall shrouded in uncertainty.

However, U.S. Treasury Secretary Janet Yellen clearly expressed in an interview that "some tariffs may not need to be imposed, and some countries facing the risk of tax increases may wish to negotiate with us." This policy currently appears to be primarily a stick approach to compel other countries to yield, likely announcing tax rates for various countries while providing some time for negotiations.

In other words, the actual implementation may still be more noise than action. The current uncertainty in the U.S. economy is indeed raising pressure on global stock markets for a pullback. Chinese concept assets may also need to adjust in this wave, especially if the U.S. subsequently imposes special tariffs on specific industries in China.

However, emerging from this wave of Trump's "global venting" against domestic manufacturing, Chinese concept assets should truly focus on:

a. Progress in large model technologies like DeepSeek;

b. Domestic consumption signals during the Qingming and Dragon Boat festivals in April and May, and whether there will be more incremental policies to stimulate consumption, especially in service consumption.

Overall, Dolphin Research remains confident in the revaluation of Chinese assets in 2025.

III. Portfolio Adjustment and Returns

Last week, Alpha Dolphin made no adjustments to the portfolio. The Alpha Dolphin portfolio had a return of -0.9% last week, underperforming the CSI 300 (0%), but outperforming MSCI China (-1%), S&P 500 (-1.5%), and Hang Seng Tech (-2.4%).

Since the start of the portfolio testing (March 25, 2022) until last weekend, the absolute return of the portfolio is 81.5%, with an excess return of 76% compared to MSCI China. From the perspective of net asset value, Dolphin Research's initial virtual asset of 100 million USD has exceeded 182 million USD as of last weekend.

V. Individual Stock Profit and Loss Contribution

The Trump administration artificially created a "detox period" for the U.S. economy, putting pressure on U.S. stocks; meanwhile, Trump's long-term "foundation-laying" plan for manufacturing repatriation—the so-called "Liberation Day" on April 2—has also brought downward pressure to global stock markets, leading to a continuous adjustment of various assets recently.

Dolphin Research explains the specific stocks with significant price fluctuations as follows:

VI. Asset Portfolio Distribution

The Alpha Dolphin virtual portfolio holds a total of 17 stocks and equity ETFs, including 8 standard allocations, 1 overweight, and the rest underweight. Besides ancient coins, assets are mainly distributed in gold, U.S. Treasury bonds, and USD cash.

As of last weekend, the asset allocation and equity asset holding weights of Alpha Dolphin are as follows: