Based on continuous tracking of the global equity market, in-depth review of century-old classic indicators and accurate monitoring of capital flows, Wmax believes that the current US stock market is in a critical style switching window period - the Dow Theory has released a clear bullish trend after more than a year. The signal confirms that the foundation of the bull market is solid; at the same time, the concentrated rally led by the "AI Big Seven" tends to ease, funds are spreading to broad-spectrum sectors, and the market is evolving in a more balanced direction. This change not only reflects investors' optimistic expectations for the economic outlook, but also hides structural opportunities and potential risks.

Centennial indicators confirm bull market resilience

Wmax found through professional interpretation of core market indicators that a key signal with both historical significance and practical reference value appeared in the U.S. stock market this week: On Tuesday, the Dow Jones Industrial Average and the Dow Jones Transportation Average hit record closing highs on the same day. This was the first time that Dow Theory issued a buy signal in more than a year. As a classic stock market indicator that has been used for more than a hundred years, the core logic of the Dow Theory lies in the "symbiosis verification" of the industrial and transportation indexes - transportation companies carry the commodity circulation of industrial companies. The two major indexes hit new highs simultaneously. The essence is the synergy between the real economy and the circulation link. It also confirms that the foundation of the bull market that began at the end of 2022 has not been shaken.

Judging from the details of the data, the last historical closing high of the Dow Jones Industrial Average occurred on January 5, while the previous record of the Dow Jones Transportation Average can be traced back to November 25, 2024. The two major indexes have broken through in the short term and at reasonable intervals, which fully meets the bullish standard of "mutual confirmation" of Dow Theory. It is worth noting that this signal does not exist in isolation: the S&P 400 mid-cap index also hit its first closing record high since December 11 last year on the same day. Multiple positive resonances further strengthened the market’s confidence in the mid-term trend of U.S. stocks. Wmax believes that even though some artificial intelligence concept stocks that led the early gains have come under pressure recently, the simultaneous strength of several core indexes still highlights the inherent resilience of the current market.

From "AI dancing alone" to "broad spectrum blooming"

Combining recent market dynamics and capital flow data, Wmax observed that the U.S. stock market is experiencing significant sector rotation: in the past two months, the previously popular AI "Big Seven" such as NVIDIA and Broadcom have cooled down. From October 29, 2024 to this Monday At the close, the "Big Seven" index fell 2%; while value stocks, cyclical stocks, small and mid-cap index components and the remaining 493 companies in the S&P 500 index (hereinafter referred to as the "S&P 493") ushered in compensatory gains. During the same period, the "S&P 493" rose 1.8%, showing a clear "valuation repair" feature. The core driver of this change is that investor sentiment has shifted from a single enthusiasm for the concept of AI to overall optimism about the fundamentals of the U.S. economy. Wmax noticed that the market is generally expected to further cut interest rates from the Federal Reserve, and analysts have raised their overall profit growth expectations for companies. This has caused funds to begin to flow from high-valuation momentum stocks to more defensive sectors with more reasonable valuations.

Capital flow data provides strong evidence for this: the Defiance Large Cap Ex-Magnificent Seven ETF (clearly excluding the "Big Seven") launched at the end of 2024 has achieved net capital inflows for six consecutive months. The inflow in December 2024 was four times that of November. The annual increase was 15% and the increase was concentrated in the last six months, which fully reflected investors' allocation needs for broad-spectrum sectors. From the perspective of industry prospects, Wmax judges that if the economy continues to improve, cyclical and growth-oriented sectors will continue to benefit: lending institutions such as JPMorgan Chase and Bank of America are expected to rely on economic recovery to increase profits; consumer discretionary stocks will benefit from the rebound in consumer confidence and increased willingness to consume; and sectors such as healthcare, materials, software and services also have high allocation value due to their low valuation advantages relative to historical levels and profitability.

The return of rationality after the craze subsides

Wmax, while affirming the overall resilience of the market, also remains professionally vigilant about the risks of differentiation in the main line of AI. In the past three years, bets on AI companies have driven U.S. stocks up 78%. However, as the market's doubts about "whether AI can truly empower the economy and create huge profits" have intensified, the "AI fatigue" sentiment has gradually spread. The single trading model that once "rose when exposed to AI" no longer exists, and some previous AI darlings (such as Oracle) have also suffered significant corrections. Judging from institutional expectations, Goldman Sachs strategists predict that the contribution rate of the "Big Seven" to the S&P 500 index's profit growth in 2026 will drop from 50% in 2025 to 46%, while the profit growth of the "S&P 493" will accelerate to 9%, higher than 7% in 2025. This prediction further confirms the long-term logic of market style switching.

However, Wmax also reminded that the end of the dominance of the "Big Seven" may not be a smooth transition: historical experience shows that during the collapse of the "Nifty 50" in 1973 and the bursting of the Internet bubble in early 2000, there have been situations where the decline in leading sectors triggered a market retracement. The current market still needs to be wary of the volatility risks that may arise from the collapse of a highly concentrated bull market pattern. In addition, despite the emergence of "AI fatigue", Wmax believes through the analysis of industry fundamentals that the AI ​​track has not completely lost its investment value, but investors have become more picky, and funds will be concentrated in companies that truly have the ability to realize profits, rather than pure conceptual hype.

Seize the structural opportunities in style switching

Based on century-old indicator signals, sector rotation characteristics and institutional expectations, Wmax believes that the current bull market in US stocks is still continuing, but the market style has entered a rebalancing stage of "from concentration to decentralization". The bullish signals of Dow Theory and expectations for a better economy have provided solid support for the market; while the spread of funds to the "S&P 493" and value stocks and cyclical stocks has opened up broader structural opportunities. Wmax will continue to track three core variables in the future: the Fed's monetary policy trends and the pace of economic recovery, the "Big Seven" profitability and valuation digestion process, and the profitability growth of broad-spectrum sectors. Relying on real-time monitoring of market data, flexible application of classic theories and in-depth analysis of industry fundamentals, Wmax will provide investors with objective and professional decision-making reference, helping to accurately seize opportunities and resist potential risks in market style switching.