Core Insights - The report emphasizes the importance of positioning for the end of the year, suggesting that bank dividends are a preferred observation strategy if the market experiences a pause in volatility [4] - It highlights the need to wait for a renewed confidence in high-growth sectors over the next 2-3 years, particularly in technology and services [5][10] - The report reviews the market's performance, noting a significant increase in the Shanghai Composite Index, which has risen over 10% to above 3800 points since the mid-year strategy [6][9] Market Overview - The report indicates that the market may experience a phase of consolidation due to external factors such as weakening U.S. economic indicators and concerns over employment, which could lead to a risk-off sentiment affecting A-shares [6][9] - It notes that the market is currently in a wait-and-see mode, with trading volumes not yet activated and sectors undergoing accelerated rotation [9][10] Investment Strategy - The report suggests a proactive approach to market conditions, focusing on sectors with favorable risk-reward ratios, particularly in real estate, resource commodities, and consumer sentiment [11][12] - It recommends monitoring high-growth sectors that are difficult to disprove, such as storage, domestic computing, and innovative pharmaceuticals, while waiting for a consensus on performance [12] Fund Flow Analysis - The report discusses the potential for fund managers to reduce positions as the year-end approaches, indicating a trend towards profit-taking [13] - It highlights that leverage funds are still flowing in but at a slower pace, suggesting a need to watch for a potential slowdown in inflows [13][28] Calendar Effect Insights - The report analyzes the calendar effect, noting that the market generally trends upward in early November but may weaken following economic meetings [14][31] - It provides insights into market performance across different styles and sectors, indicating a shift towards dividend and quality stocks post-meeting [15][16]

Core Viewpoint - The essence of the year-end market performance is the market's active search for future economic clues, leading to a revaluation of various industries based on next year's economic expectations [1][5]. Group 1: Year-End Market Dynamics - The year-end market's "high-low" nature is driven by investors' perspective shift towards economic conditions, resulting in a valuation reconstruction process [2][5]. - After the disclosure of Q3 reports in October, the market typically shifts focus to the next year, adjusting valuations based on economic expectations, which leads to year-end valuation reconstruction [2][5]. - Historical analysis since 2016 shows a strong positive correlation between industry performance rankings and next year's earnings growth, while the correlation with current earnings growth is weak or even negative [2]. Group 2: Historical Comparisons - If the market expects the main style's economic advantages to continue or accelerate next year, the main line will maintain stability and may deepen towards lower positions, as seen in 2006, 2014, 2016-2017, and 2019-2020 [6][5]. - In 2006, economic acceleration and a favorable real estate cycle led to a shift in market pricing from manufacturing to cyclical sectors [6]. - In 2016-2017, the recovery of listed companies' ROE and supply-side structural reforms maintained a focus on low-valuation value and blue-chip stocks throughout the year [6]. Group 3: Potential Market Reversals - If factors undermine the main line's economic expectations or improve lower economic expectations, the market may systematically shift towards lower positions, triggering a year-end "reversal" market [7][5]. - In Q4 2007, policy shifts to curb inflation and overheating led to a market structure change from "manufacturing + cyclical" to "TMT + consumption" [7]. - In November 2014, an unexpected interest rate cut by the central bank ignited bullish sentiment, causing a market structure shift from "manufacturing + TMT" to "financial real estate + cyclical" [7].

- The liquidity factor has shown a rapid rebound, with active trading by major funds. This week's recommended sectors for the liquidity factor include electronics, electrical equipment and new energy, pharmaceuticals, machinery, non-bank finance, and non-ferrous metals[14][16] - The long-term prosperity expectation factor, which serves as a proxy for prosperity investment, has started to show a slight upward trend in effectiveness. This week's long-term prosperity expectation factor includes non-bank finance, building materials, transportation, electric power and public utilities, and non-ferrous metals[18][20] - The short-term prosperity expectation factor continues to focus on domestic demand, with significant upward movement in long-short excess returns. This week's short-term prosperity expectation factor includes agriculture, forestry, animal husbandry, and fishery, consumer services, non-bank finance, machinery, and non-ferrous metals[22][24] - The momentum reversal factor is currently unable to describe the market trend, but it is expected that sector rotation may shift to momentum in one to two weeks. This week's momentum reversal factor includes automobiles, communications, electrical equipment and new energy, machinery, and home appliances[25][26] - The composite factor for this week includes consumer services, non-bank finance, machinery, electrical equipment and new energy, electronics, and non-ferrous metals[32][33] Factor Backtesting Results - Liquidity factor, excess return of long positions: 0.7% to 2.3% over various periods[16] - Long-term prosperity expectation factor, excess return of long positions: 0.6% to 2.4% over various periods[20] - Short-term prosperity expectation factor, excess return of long positions: 0.6% to 2.0% over various periods[24] - Momentum reversal factor, excess return of long positions: 0.4% to 2.4% over various periods[26]