AI Boom vs. Tight Liquidity: Will the US Stock Rally Continue?

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[Weekly Market Insights] Easing of US-China tensions reconfirmed, how to grasp the rotation rhythm amid higher-than-expected PPI?

Guide to this week's strategies for the US and Hong Kong markets:

Trump's visit to China confirms easing again, how to grasp the rotation rhythm?

Higher-than-expected PPI pushes US Treasury yields above 4.5%, how will high-valuation markets respond to pressure on the denominator side?

[Live Broadcast Reservation] Today at 16:30, Futu's Chief Investment Research Expert will join you to look ahead at this week’s market. Positive news emerges during the visit to China, how to grasp the rotation rhythm?

Market First Sound Weekly Call | Positive news from the China visit keeps coming, how to grasp the rotation rhythm?

[I. Macroeconomic Observations]

1.1 International Macroeconomic:

The outcomes of Trump's visit to China and the higher-than-expected PPI, how will policy paths unfold?

The results of Trump's visit to China are mainly reflected in three aspects:First, a clear procurement intention was expressed, with China expressing willingness to purchase more US energy, reaching procurement arrangements for aircraft, agricultural products (soybeans, beef), and energy categories.Second, the advancement of trade institutionalization, both parties plan to establish a dedicated institution to supervise the implementation of agreements and form institutional arrangements for non-sensitive areas, marking significant progress in Sino-US economic and trade relations;Third, there is symbolic easing in the technology sector, with approvals granted for some Chinese companies to purchase NVIDIA chips. However, this remains largely symbolic and does not represent structural opening. Overall, this visit to China did not yield any massive orders or comprehensive trade agreements; instead, it featured symbolic purchases and institutional arrangements that reaffirmed the trade truce, carrying greater symbolic than economic significance.

The United States and China reached consensus on the Iran issue,with China agreeing to gradually reduce its reliance on Iranian energy and shift toward increased imports of U.S. energy, and pledging not to supply weapons to Iran.In the meantime,U.S. April PPI came in well above expectations, heightening upstream inflationary pressures, further dampening market expectations for a near-term Fed rate cut. The 10-year Treasury yield broke above 4.5%, while the 30-year yield hit 5.045%, its highest level since last July.Rising long-end rates are exerting clear downward pressure on high-valuation assets.

US April PPI exceeded expectations Source: US Labor Bureau 2026-05-16

US-Iran negotiation scenarios Source: FTNN 2026-05-16

1.2 Domestic Macroeconomics:

China's April CPI/PPI Rebound: Driven by Upstream or Domestic Demand Recovery?

April PPI increased 2.8% year-on-year and 1.7% month-on-month, mainly driven by three sectors: oil and gas extraction (up 28.6% year-on-year), petroleum and coal processing (up 14.2% year-on-year), and chemical raw materials (up 8.9% year-on-year), collectively contributing approximately 1.5 percentage points. Domestically, coal mining and ferrous metal smelting industries also saw a month-on-month increase. CPI rose 1.2% year-on-year, core CPI increased 1.2% synchronously, but the core consumer goods CPI excluding gold prices was only about 0.97%, with industrial consumer goods declining 0.2% month-on-month.

The current inflation recovery reflects more of a combination of 'upstream cost-push and weak downstream pricing power' rather than a full-scale overheating of domestic demand. The pricing power of mid- and downstream consumer manufacturing remains weak, domestic demand recovery is still moderate, and comprehensive inflationary pressure driven by end-user demand has yet to emerge.

Source: National Bureau of Statistics 2026-05-16

[Section Two: Market Views]

2.1 US Stock Market

S&P slightly up, Nasdaq slightly down; how to respond as macro narrative returns?

$S&P 500 Index (.SPX.US)$ The entire week rose by 0.13%,$NASDAQ 100 Index (.NDX.US)$ Down 0.08%. Last week, US stocks began pricing in macro narratives. After the 10-year Treasury yield broke through 4.5% and WTI crude oil surpassed $105 per barrel, the market started worrying about micro profitability being impacted, sector divergence intensified, and growth stocks sensitive to interest rates faced greater adjustment pressure.

In the short term, a moderately positive stance remains, but expectations for index-level aggressive moves need to be lowered. The drivers of US stock market highs—AI capital expenditure, better-than-expected earnings, and easing geopolitical tensions—all experienced marginal disturbances in the second half of last week.From a medium-term perspective, the expansion of profits, continued operating leverage, and deeper AI adoption still support high valuations, but the tolerance of valuation and momentum to rising oil prices, inflation, and long-term interest rates has significantly decreased. Wash's most likely short-term policy mix is balance sheet reduction + unchanged interest rates, which is favorable for US stocks and gold, while US bond yields are more volatile.The core significance of the meeting between the leaders of China and the US lies in reducing tail risks rather than directly boosting profitability. The S&P 500 forward 12-month P/E ratio is 22.3 (as of May 14).

S&P 500 forward 12-month P/E ratio 22.3 (May 14) Source: Bloomberg, Futu Private Wealth compilation

Focus Stocks$AXT Inc (AXTI.US)$ ：The core supplier of InP (Indium Phosphide), the most scarce foundational material in the AI optical interconnect chain.

Management clearly stated in the Q1 earnings call that, driven by AI applications and the data center upgrade cycle, demand for InP wafers is significantly increasing, with InP revenue accounting for slightly more than 50% of total revenue. Q2 guidance confirms revenue of approximately $34 million, with upside potential if additional licenses are approved.An inflection point in performance has emerged as the product mix shifts towards high-margin InP, with some products beginning to increase in price. Q2 is expected to see non-GAAP EPS of $0.06-$0.08.。

InP demand and order strength remain extremely high, with Q2 expected to be the largest InP quarter in the company's history. China-related revenue doubled in Q1 and is expected to double again in Q2.Clear capacity expansion plan: InP quarterly capacity expected to reach approximately $35 million by the end of 2026, and increase to $65-70 million per quarter by the end of 2027 or early 2028.. Major global players are concentrated in $Sumitomo Electric Industries (5802.JP)$ 、 $AXT Inc (AXTI.US)$ 、 $JX Advanced Metals (5016.JP)$ The market anticipates a 4-6 times growth in substrate demand over the next 3-5 years, with customer certification, yield rates, and size upgrades all posing as barriers.Future stock price drivers will depend on quarterly revenue delivery, sustained gross margins, and the efficiency of capacity ramp-ups. The company is currently in the validation period following confirmation of an inflection point in fundamentals.

Source: Company announcements and financial reports, Futu Private Wealth Research compilation

2.2 Hong Kong Stock Market

Hang Seng Index fell 1.63% this week; where are the structural opportunities after positive catalysts have been priced in?

The Hang Seng Index fell 1.63% for the week, with average daily turnover reaching HKD 266 billion, an increase of about HKD 25 billion compared to last week. Southbound trading via Stock Connect recorded a net inflow of HKD 9.3 billion. Large-cap tech stocks and semiconductors opened high but closed lower.The weakening of the index is more due to external disturbances and profit-taking at higher levels, while southbound buying has not significantly retreated.On Friday alone, there was a net inflow of HKD 24.9 billion. The proportion of short-selling dropped to 10.99%, indicating that the market is undergoing portfolio adjustments rather than panic, given the high turnover and low short-selling activity.

In the short term, Hong Kong stocks have entered a neutral consolidation phase at the index level, but the outlook remains cautiously optimistic for the medium term, with structural allocation opportunities becoming clearer than last week. After positive catalysts were realized in the second half of last week, there was a lack of new drivers, while US Treasury yields, oil prices, and foreign investor risk appetite continued to weigh on the market.The key difference between Hong Kong and US stocks lies in valuation advantages, and structural opportunities have not disappeared.Prioritize AI internet, export chains, and high-dividend stocks. Technology leaders are shifting growth drivers towards advertising, cloud, AI, and efficiency improvements, favoring leading platforms and companies with strong cash flow.The Hang Seng Index's forward 12-month price-to-earnings ratio stood at 11.82 as of May 15, making it an attractive valuation.

The forward 12-month P/E ratio of the Hang Seng Index stood at 11.82 (May 15). Source: Bloomberg, collated by Futu Private Wealth

Focus Stocks$LENS (06613.HK)$ ：Vertically integrated platform targets in consumer electronics, robotics, and AI servers.

First-quarter profits faced pressure, but the mid-term growth logic remains intact. On the contrary, opportunities in robotics, foldable screens, automotive glass, and AI servers have become more evident across four key areas.The company has built a vertically integrated platform spanning from core components to modules and full-system assembly, covering liquid metal, aluminum-magnesium alloy structural parts, six-axis force sensors, head modules, joint modules, dexterous hands, and complete robot assembly, demonstrating strong potential as an industry chain leader.

Robots represent the most valuation-sensitive new growth driver,with combined shipments of humanoid and quadruped robots exceeding 10,000 units for the full year, and the Yong’an campus has the capacity to produce 500,000 embodied AI robots annually.Foldable displays are the most certain catalyst in the second half of 2026,with ultra-thin glass (UTG) and related components serving as key supplies; module shipments are expected to start contributing from May onward, with significantly higher per-unit value compared to traditional smartphones.

AI server orders remain robust, with active capacity expansion underway in locations such as Songshan Lake. SSD solid-state drives from the Xiangtan campus began mass shipments in March 2026, while HDD glass substrates have entered the verification and small-scale trial production phase.Near-term focus should be on the shipment cadence of foldable displays and progress in securing robot orders.

Source: Company announcements and financial reports, Futu Private Wealth Research compilation

[III. Focus for This Week]

[4. Major bank views]

US Stock Summary:We maintain a cautiously optimistic near-term stance but recommend downgrading expectations for index-level aggressive upside. Earnings dispersion, sustained operating leverage, and deeper AI adoption support elevated valuations; however, linear extrapolation based on the prior six weeks’ unidirectional upward trend is unwarranted. Valuations and momentum now show significantly reduced tolerance for rising oil prices, inflation, and long-end interest rates.Market sentiment remains fragile with high sector concentration, and most individual stocks are still below their 52-week highs. Priority should be given to AI-focused sectors, semiconductors, and large technology companies with strong earnings certainty.

Hong Kong Stock Summary:In the short term, index levels have entered a neutral consolidation phase, but the outlook is not pessimistic in the medium term; structural allocation opportunities have become clearer compared to last week.US Treasury yields, oil prices, and foreign investor risk appetite continue to weigh on Hong Kong stocks. However, supported by a low base, year-on-year PPI is expected to remain high or exceed 3% in the coming months. MSCI China’s Q1 2026 earnings show initial signs of improvement, with a mild recovery anticipated starting in the second half of the year.Overweight AI internet, export chains, and high dividend stocks; underweight real estate-related sectors. The barbell strategy remains the optimal choice at present.

[5. Simulated Portfolio]

Weekly performance for May 1st

5.2 Profit and loss attribution

5.3 Portfolio adjustment strategy

5.4 Update portfolio

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