As expected, the risk markets surged significantly, with Nvidia's explosive profit results driving the stock market to new highs. The AI giant's market value surged by $247 billion yesterday, setting a record for the largest single-day increase in market value, surpassing Meta's $197 billion achieved earlier this month. In addition, mainstream analysts and media have begun to defend the stock's historic surge, claiming that the growth in EPS has compressed the P/E ratio (forward P/E ratio "only" 35 times).

Furthermore, a statistical study indicates that the current AI "bubble" is still in its early stages, with more room for growth. The study analyzed over 1000 large stocks that rose by more than 35% within 3 months in the past 30 years. The results show that the return rate in the next quarter remains slightly positive and there is no significant pullback. If history repeats itself in the short term, this is a good sign for the current risk rebound.

Yesterday, the SPX index rose by 2%, with a broad and strong upward trend. All sectors except utilities saw gains, with the technology sector surging by as much as 4.4%. As expected, due to almost no short-term concerns for investors, the cost of downside hedging has dropped to multi-year lows.

This strong upward trend is not limited to the United States. The Nikkei index also hit a historic high, actually outperforming the SPX over the past 10 years (in local currency). Nearly 90% of Japan's CPI categories have seen growth, and inflation in Japan is becoming more entrenched, with capital continuing to flow into its stock market and real estate.

The US economy remains in good shape (yesterday's initial jobless claims and PMI data remain strong), financial conditions have significantly eased, large publicly traded companies in the US are still profitable, and the significant wealth effect brought by generative AI and the expectation of future productivity improvements. Will the Federal Reserve be forced to take a more hawkish stance in the future? Or are we entering a period of stock market "perched on an eternal high ground" (Fisher 1929) or "irrational exuberance" (Greenspan 1996)? In either case, the narrative of "higher rates for longer" should return, and the stock-bond correlation may remain decoupled in the short term.

Unfortunately, the rising tide does not apply to every scenario. Due to rising financing costs and capital allocation concentrated in AI, investors' interest in reinvestment has decreased, and illiquid venture capital and private equity sectors have been hit. Investors are now more focused on cash flow and liquidity, and the private equity investment field may continue to shift towards structured secondary markets and fund structures. Both the market and the cycle are evolving, and so must we.

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