Daily Report 2025.12.18

Yesterday, U.S. stocks continued to decline after the market closed, with tech stocks all pulling back, and Bitcoin also experienced a rally followed by a retreat.

The US Christmas holiday is approaching, and market liquidity is relatively low. Investor sentiment is cautious, and any small movement can trigger a rush to exit.

Currently, the US stock market has entered a leveraged bubble state.

From the on-market leverage indicator of US stocks, since June 2025, this indicator has broken through one standard deviation. It is now roughly comparable to July 2007, not yet at the extreme levels of March 2000, but already significantly higher than the mid-term highs since 2009.

Once the bubble phase begins, US stock movements mainly depend on liquidity rather than fundamentals.

If on-market deleveraging starts and the indicator turns downward, the entire market will enter a medium- to long-term downtrend.

Moreover, the higher the peak, the lower the bottom after deleveraging.

From this perspective, if US stocks really decline, the adjustment could be even larger than the wave from November 2021 to December 2022.

Currently, the most关注 is US monetary policy, which will directly determine the direction of US stocks and liquidity.

At present, AI and tech stocks are attracting investors with policy and capital support.

However, investors are also worried that the Federal Reserve and Trump have not yet decided who will win, fearing that the US economy might slip into recession, leading to intense betting and high volatility.

Yesterday, legendary trader Ban Mu Xia mentioned that concerns about the AI bubble have been ongoing for some time, and the market has basically digested these fears.

Concerns about Japan's interest rate hikes have also caused recent market stagnation, which is within market expectations.

The Federal Reserve has started expanding its balance sheet, and liquidity is gradually improving.

Last week’s non-farm payroll data was not great but not too bad either, which leaves more room for rate cuts and does not directly signal a recession.

Therefore, now might be the best time in the medium term (next 1-2 months) to buy risk assets such as Bitcoin, S&P 500, and CSI 300.

In the next one or two years, cyclical concerns about AI bubbles may re-emerge, each causing market pullbacks. But each pullback is actually a buying opportunity until the market becomes wildly convinced that this time is different.

From a macro perspective, I believe the Federal Reserve has entered a large easing cycle, with three consecutive rate cuts in 2025, plus balance sheet expansion, and market liquidity will gradually recover.

Additionally, Trump will have mid-term elections next year, and he certainly won’t want the US economy to fall into recession, nor will US stocks crash significantly. This will require the Fed to cooperate with him in easing monetary policy.

As long as the Fed’s monetary policy does not shift, the problem is manageable. The key now is who can hold out until the end.

From the data, it appears that short-term holders are mainly selling, and there isn’t much selling pressure from trapped investors at high levels. BTC mainly follows the tech stocks of US stocks.

In the past week, whales also bought 54,000 BTC, worth $4.66 billion.

However, according to spot ETF data, both BTC and ETH are experiencing outflows. On December 16, BTC outflows amounted to $277 million, and ETH outflows were $224 million, indicating that US institutional investors are currently cautious.

Overall, December is the holiday season for North America, with Christmas and year-end breaks, making it the period with the poorest market liquidity. Coupled with various macro events gradually unfolding, market volatility is expected to increase.

Next, attention should be paid to Thursday’s CPI inflation data. The lower the figure, the more favorable it is for the Fed to cut rates.

On Friday, the Bank of Japan will announce its interest rate decision. A 25 basis point hike is almost certain, which is a bearish signal, but the market has already priced it in, so the impact should be limited.

The key is whether the Bank of Japan will signal a continued rate hike, which could influence short-term market sentiment and prices.