The US financial markets are currently at a pivotal juncture, presenting significant questions about the roles of stocks and bonds moving into the new yearWith a recent report from the Bureau of Labor Statistics showing slightly better-than-expected non-farm payroll data for November, analysts are leaning toward a bullish outlook for US equitiesThe environment characterized by low interest rates, declining inflation, and increasing corporate profits could favor a continued rise in stock prices as 2023 draws to a closeMajor Wall Street investment firms have expressed optimism regarding the trajectory of the US stock market in 2024. For instance, Oppenheimer Asset Management predicts that the S&P 500 index may reach an unprecedented 7,100 points by the end of next year, surpassing the previously set forecasts of 7,000 points by Deutsche Bank and Yardeni Research, as well as the 7,007 points suggested by the Wells Fargo market strategy team.

Recent market performance also supports these optimistic forecasts, with both the S&P 500 and the Nasdaq indices reaching record highs last week

Concurrently, the US Treasury yields continued to rebound following the announcement of the non-farm payroll dataThis week, investors are keenly awaiting the release of the November Consumer Price Index (CPI), with many speculating that it could serve as a “black swan” event that might disrupt the market's expectation for a Federal Reserve rate cut in DecemberGang Hu, managing partner at Winshore Capital Partners, noted, "Unless the CPI significantly exceeds expectations, the Fed's baseline plan is still to cut rates this month, as they still consider current policy restrictive, hence I believe Treasury yields have peaked."

For the short term, equities seem to excel over bonds; however, the situation may balance out in the medium to long termThe Manufacturing and Services PMI from ISM revealed notable discrepancies largely attributed to inventory levelsManufacturing inventory rose from 46.8 to 48.4, in contrast to the Services sector, which saw inventory plummet from 57.2 to 45.9, indicating divergent economic outlooks among purchasing managers

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Although employment data appears strong, underlying currents may pose challengesNon-farm job additions over the last year required downward revisions in eight of the past twelve months, with a 12-month average adjustment of -27,000 positions, alongside a slight uptick in unemployment rates.

While risks abound, investors are becoming selective in their stock choices, with sectors such as communications, technology, and consumer discretionary showing compelling interest due to their three-year earnings compound annual growth rates of 21%, 20%, and 14%, respectivelyNevertheless, there is also a growing inclination towards bonds, evidenced by the ten-year US Treasury yield dipping to 4.13%. This mixed sentiment highlights the current volatility in the market, emphasizing the need for a balanced investment strategy.

Turning the spotlight to corporate earnings, Lululemon Athletica Inc

recently disclosed exemplary third-quarter financial results, which may signify a breakthrough in its growth challengesFollowing the release of better-than-expected quarterly earnings, Lululemon's shares surged by 16.9%. Analysts quickly reacted to this positive news, elevating their price targets and alleviating concerns about the brand's declining allureSpecifically, Lululemon's global net revenue for the third quarter reached $2.4 billion, marking a 9% increase year-over-year, surpassing the market consensus of $2.36 billionThe company also reported earnings per share (EPS) of $2.87, exceeding the analysts’ expectations of $2.75. Revenue by region shows the Americas contributing $1.77 billion (up 2% year-over-year), while revenues from mainland China skyrocketed to $318 million (up 39%). Furthermore, revenues from international markets rose by 8.73% to reach $308 million.

For the fourth quarter of fiscal 2024, Lululemon is forecasting net revenues between $3.475 billion and $3.510 billion—representing growth of approximately 8% to 10%—with diluted EPS projected to range from $5.56 to $5.64. For the entire fiscal year 2024, the company expects net revenues between $10.452 billion and $10.487 billion, translating to a year-over-year growth of about 9%. Morgan Stanley maintained its rating on Lululemon but adjusted it from "overweight" to a rating of "buy," increasing its target price from $345.00 to $414.00.

The impressive financial performance attributed to Lululemon, notably a 41% year-over-year increase in earnings, is primarily driven by the remarkable growth witnessed in mainland China

Furthermore, the overall aspiration within the company has led it to project a revenue growth of 28% and a profit growth of 15% for the year, alongside announcing a stock buyback program amounting to $1 billionDespite several large firms raising their target prices, there remains a discrepancy of $100 compared to its historical highs.

In contrast, Oracle Corporation's second-quarter earnings report fell short of analyst expectations, revealing a cautioned outlookThe company reported an adjusted EPS of $1.47, slightly below the anticipated $1.48, while second-quarter revenue amounted to $14.06 billion against expectations of $14.12 billionThe cloud infrastructure revenue (IAAS) also missed estimates at $2.4 billion, while cloud application revenue (SAAS) stood at $3.5 billion, below the anticipated $3.58 billionOracle's after-hours trading reflected this disappointment, with shares dropping by over 7%, closing at $190.45 and down 0.65% for the day

Despite this shortfall, Oracle executives remain optimistic, believing that the company’s annual revenues will still witness double-digit growth.

Growth in demand for cloud infrastructure has been driving Oracle's performanceAs various industries pivot towards technology to reduce costs and enhance efficiency, the demand for these services escalatesThe fundamental demand for technology revolves around accelerating digital transformation among companies, consequently increasing reliance on cloud infrastructureOracle's expansion in cloud capabilities has aligned well with the demands for the computing and storage services required by enterprisesIn optimizing its cloud application services and collaborating with companies like OpenAI and Microsoft, Oracle is enhancing user experiences and attracting more corporate clients to subscribe to their services, thereby contributing to the growth in cloud application revenues.

Simultaneously, Amazon and OpenAI are embarking on an ambitious endeavor: the advent of AI large models that herald a new era of inference

Last week's Amazon 2024 re:Invent global conference drew significant attention, leading to a notable increase of 9.2% in stock pricesCEO Matt Garman's keynote outlined a host of initiatives aimed at simplifying and streamlining developer tasksThese include the introduction of the Amazon Nova foundational model and the innovative Amazon Bedrock servicesClearly, AWS's AI initiatives focus primarily on inference—the process by which AI models draw conclusions or make predictionsOpenAI, which previously launched the first AI large model with genuine universal reasoning capabilities, referred to as o1, demonstrated remarkable abilities in tackling complex questions and reasoning tasks, marking a historical pivot in AI technologyLast week, OpenAI also unveiled the fully matured version of o1 to the public.

In a notable announcement made on December 9, OpenAI introduced the Sora model—an AI video generation tool capable of creating realistic videos based on text prompts

This system boasts features that allow users to replace, delete or add elements, re-edit, extend, and merge videos without added charges for subscribersAdditionally, DBS Bank’s CEO, Piyush Gupta, commented on Amazon's release of its next-generation AI training chip Trainium3, the company's first AI chip manufactured using 3nm technology, slated for launch in 2025. Furthermore, enhancements to Amazon Bedrock's capabilities were revealed, including a newly introduced auto-inference verification feature designed to mitigate inaccuracies resulting from model hallucinationsAI inference represents the second phase of AI development, and the conference showcased an array of new services across fields including data analysis, storage, and database applicationsThese advances are anticipated to continue fuelling business growth, with projections estimating an 11% revenue increase and an impressive 70% surge in profits for Amazon this year.

Moreover, Deutsche Bank has projected the semiconductor market landscape for 2025 to be characterized by both boom and bust conditions

Companies involved in AI-related semiconductors are set to experience robust growth in 2024, while the performance of other semiconductor firms remains inconsistentLooking ahead to 2025, Deutsche Bank analysts anticipate accelerated revenue growth for semiconductor firms outside of memory—estimated at about 16% year-over-year—despite the ongoing fragmentation within the marketThe AI sector is projected to achieve growth in the low double-digits, whereas other sectors may see a low single-digit percentage increaseDeutsche Bank also emphasized that next year’s semiconductor market will likely display two central themes: companies with a broad base may enjoy better growth prospects, and the tailwinds associated with AI should continue to benefit a select group of firms.

Notably, among companies within the broad semiconductor category, Deutsche Bank holds a favorable view of NXP Semiconductors (NXPI.US) and ON Semiconductor (ON.US). The analysts find their forecasts to be on the conservative side, while the overall assessment recognizes improvements in their structural positions and ongoing low valuations

In the realm of AI-centric semiconductor companies, there are expectations that GPU-powered accelerators will experience another year of explosive growth, led by Nvidia and AMD, along with contributions from ASIC and networking players such as Broadcom, NXP, and Astera Labs (ALAB.US).

As the market approaches next year, AI-related semiconductor firms are poised to capture the initial benefits of the burgeoning demand, particularly in the first phase focusing on AI computation power driven by GPUsAMD's projections indicate that the GPU market size is set to increase significantly from $45 billion last year to an astounding $500 billion by 2028, representing a compounded annual growth rate of 60%. However, it is worth noting that the second phase of AI focused on inference may demand entirely different requirements for chips, necessitating significant advancements in storage solutions alongside computational capabilities.

Furthermore, there is a general expectation within the market that by 2032, technology spending across various industries may surpass $11 trillion, with AI accounting for only 12% of that total