The AI trading frenzy was just dealt a heavy blow by Alphabet's disappointing earnings report. Next week, the market will face a combined test from the US midterm elections, a flurry of earnings reports from tech giants, and a full set of US employment data. The Federal Reserve's decision to hold rates steady reflects the uncertainty surrounding inflation, compounded by global central banks' cautious approach to the labor market, geopolitical uncertainties surrounding Russia-Ukraine and the US-Iran conflict, and the interplay of domestic stimulus expectations. With multiple major events converging, a high-volatility window has opened. Whether the AI theme can withstand the dual pressures of earnings and regulation, and how employment data will reshape interest rate pricing, will be the core of the week's trading.

Key events schedule for next week (Monday to Friday)

On Monday (November 2nd), European PMIs were released, with Apple firing the first shot in AI earnings reports. The Eurozone, the UK, France, and Germany released their October manufacturing PMIs, providing an initial assessment of the business climate in Europe. US stocks entered a period of concentrated Q3 earnings releases, with Apple leading the way with its Q3 results, putting the AI sector to its first major performance test. On Tuesday (November 3rd), the US midterm elections were held, and the Reserve Bank of Australia (RBA) raised interest rates. The US midterm elections officially began, with markets speculating on whether the Democrats could regain control of Congress. The RBA announced its interest rate decision, with the market widely expecting a 25bp rate hike to 4.85%, marking the second consecutive month of tightening monetary policy, focusing on labor supply constraints. The election results will directly price AI regulation, data center approvals, and fiscal stimulus policies, making it the biggest political variable this week. Wednesday (November 4th): ADP Non-Farm Payrolls and Eurozone CPI Release The US releases October ADP private sector employment data, a leading indicator for non-farm payrolls; the Eurozone releases October CPI, confirming the pace of European inflation decline; EIA and API release crude oil inventory data, impacting the energy sector and commodity prices. Thursday (November 5th): A Pile of Unemployment Data and the Bank of England's Interest Rate Decision US initial and continuing jobless claims, plus Challenger job cuts data, will be released, continuously tracking signs of weakening employment; the Bank of England will hold its interest rate meeting, with a high probability of a 25bp rate hike to 4%, the first rate hike in seven months; the Bank of Japan will release its meeting minutes, further confirming its exit from easing measures. Friday (November 6th): Non-Farm Payrolls and Employment Rate Expectations This week's key data releases include: US October non-farm payrolls, unemployment rate, and wage growth. The entire week forms a complete employment observation chain of "ADP—Unemployment Claims—Non-Farm Payrolls," a core window for verifying the Fed's logic of pausing interest rate hikes.

Macroeconomic Theme: The Labor Market Determines the Direction of Federal Reserve Policy

Federal Reserve Chairman Warsh is currently facing a dilemma: with the downward trend in inflation unclear, he has temporarily chosen to pause interest rate hikes. The collective pause in rate hikes by major central banks worldwide stems from shared concerns about the waning strength of the labor market. While US Q3 GDP exceeded expectations, weak job growth created a contradictory pattern of "strong economy, weak employment," which is currently the biggest point of contention in market expectations. Next Monday's employment data will directly determine subsequent interest rate pricing: 1. If non-farm payrolls fall short of expectations and wage growth slows, it will reinforce expectations of weakening employment, solidify expectations that the Fed will maintain its current interest rate policy, and lead to a decline in US Treasury yields, which is beneficial for growth stocks and gold; 2. If employment data again exceeds expectations and wage stickiness remains high, the market will re-price a December rate hike, causing US Treasury yields to rebound and suppressing highly valued AI technology stocks. Meanwhile, the Eurozone CPI will simultaneously test the inflection point of overseas inflation. If European inflation fails to reach its target, it will drag down the pace of the global interest rate cut cycle, further constraining the upside potential of global risk assets.

Four core variables in market dynamics

(I) US Midterm Elections: AI Sector Priced for Policy Risks Market Baseline Scenario: The Democrats are highly likely to win the House of Representatives, while the Senate outcome remains highly uncertain; if the Democrats achieve a landslide victory and control both houses, expectations for tighter AI regulation will rapidly intensify. 1. Negative Factors: The Democrats will strengthen environmental and energy consumption reviews of data centers, raising the approval threshold for computing infrastructure, directly impacting the main drivers of computing capital expenditures such as Alphabet and AMD, leading to a new round of valuation declines in the overvalued AI sector; fiscal stimulus will be constrained, and deficit expansion will be limited, further suppressing risk appetite. 2. Scenario Extrapolation: If the election results align with the market's pre-priced-in scenario of "Democrats winning the House and the Senate remaining divided," a "sell-the-news" scenario is likely; however, if a Democratic landslide victory occurs, tech stocks will experience a rapid short-term correction. 3. Derivative Opportunities: The defense, healthcare, banking, and crypto sectors will also be affected by election policies; a complete Democratic victory will lead to stronger industry regulation, putting pressure on related sectors. (II) A Surge of AI Q3 Earnings Reports: Extremely Low Tolerance for Performance Errors Amid High Expectations The core contradiction of this round of AI market rally has become apparent: Alphabet's Q3 earnings report showed high cash burn and revenue falling short of expectations, resulting in a single-day stock price plunge of over 12%, marking the beginning of a trend of underperforming earnings. Next week, over a hundred S&P 500 companies, including Apple, AMD, and Palantir, will release their earnings reports. Institutional expectations for profitability have already reached high levels, setting extremely high performance thresholds: merely meeting these targets is insufficient to support stock prices. If capital expenditures fall short of expectations and AI business growth slows, it could easily trigger a stampede of funds, initiating a chain reaction of liquidity corrections. Risk projection: If multiple leading AI companies experience significant setbacks, coupled with negative policy impacts from the election, high-flying tech stocks will experience a deep correction. Funds will flee the AI sector and shift to defensive sectors such as energy, finance, utilities, and pharmaceuticals. Adjustments in the AI sector will also lead to a decline in risk appetite, indirectly putting downward pressure on gold prices. (III) Geopolitical Game: US-Iran and Russia-Ukraine Situations Await Positive Developments During the election window, the White House has an incentive to release positive news regarding geopolitical easing to stabilize the market. The key focus is on whether there will be news of a phased ceasefire or successful negotiations in the US-Iran and Russia-Ukraine conflicts. Two trading scenarios: 1. If a short-term easing agreement is reached, it will benefit risk assets, and gold prices will quickly fall; 2. If there is no substantial progress, geopolitical risk aversion expectations will not materialize, easily leading to a "good news not coming, bad news exhausted" scenario, and a phased decline in risk aversion. ( IV) Domestic Stimulus Policy Expectations: Whether Expectations are Realized Determines the Resilience of US Stocks Under the premise that the US election creates policy checks and balances and the Republican Party is unlikely to implement large-scale fiscal stimulus, the market will closely monitor whether stimulus policies will be introduced or whether the content related to the peace talks will be finalized.

Asset Trend Summary and Trading Theme

Next week, the market will see repeated battles around four main themes: labor market data, midterm election policy pricing, AI Q3 earnings releases, and the Middle East and Russia-Ukraine geopolitical situation. 1. US Stocks: The AI sector is under pressure from both high expectations and negative policy news; weaker-than-expected earnings could easily trigger a deep correction. Funds will continue to rotate into defensive sectors such as energy, finance, and pharmaceuticals. A period of recovery will only occur after the elections conclude and policy uncertainty subsides. 2. US Dollar and US Treasuries: Non-farm payrolls are the core variable. Strong employment increases expectations of interest rate hikes, raises US Treasury yields, and strengthens the dollar; weak employment has the opposite effect. 3. Gold: On one hand, AI corrections lead to tighter liquidity, suppressing gold prices; on the other hand, geopolitical risk aversion and weak employment provide support. Short-term bullish and bearish battles intensify; only escalating geopolitical conflicts and a significant weakening of employment will open up upward potential. 4. Europe and the Pound Sterling: With the UK interest rate hike finalized and Eurozone CPI released, if inflation stickiness exceeds expectations, the pound and euro will be relatively strong in the short term. Overall, this week is a highly volatile period with a lot of news. AI trading was overheated in the early stages, coupled with election policy risks. In the short term, it is advisable to be cautious about chasing high-tech growth stocks and wait for earnings results and election results before repositioning.