February 2025 Market Memo

Market Overview, Analysis, and Outlook:

S&P 500 Index Performance this month: -1.42%.

Targeted Sell-offs in the Market
Large-cap tech stocks and retail-favorite names like PLTR and HIMS have come under significant selling pressure, while TSLA has dropped 30% year-to-date. However, overall, the indices remain healthy. This recent pullback has caused a greater psychological impact on investors than the actual decline in the indices. In February, the number of advancing stocks still outnumbered decliners, indicating that the broader market has yet to enter a full correction.

Recession on the Horizon
GDP model projections have dropped significantly, coupled with a decline in consumer confidence. Recession risk is no longer just speculation—it is now an imminent reality.

Macro Trends
The fiscal policy outlook remains highly complex, with continuous new developments causing market fluctuations. While a tax cut plan is in progress, passing it will not be easy.

Chinese Market
We have maintained a bullish outlook on the Chinese market for some time, but our fund has not taken significant positions for two main reasons:

1) Our investors have explicitly expressed a lack of preference for Chinese stocks.

2) The volatility of Chinese stocks is significantly higher than that of U.S. stocks, making them more challenging to trade.

As a newly established fund, we continue to prioritize stability and a conservative approach. However, I will still share my views on China’s market.

In the short term, the market appears overheated, with a large influx of retail investors driven by FOMO (fear of missing out). This phase will no longer offer easy profits, as many are rushing in to chase gains. That said, after a period of consolidation or correction—particularly after the National People's Congress (NPC) in March—there could be another wave of market activity before the summer. This rally is clearly led by large Chinese tech firms, with multiple catalysts, including political, economic, and, most importantly, investor sentiment.

U.S. Market Outlook
In the short term, March is likely to see continued upward movement with volatility. However, a major market correction is not far away. Any long-term investment positions should wait for a large-scale panic-driven sell-off before entering the market.

Future Outlook and Strategy:

• We continue to focus on traditional industries, while large-cap tech stocks remain overvalued—we are waiting for more reasonable price levels before entering.

• A conservative approach is a core characteristic of our fund and my personal trading philosophy. This will remain in place until we see a significant 15%+ market correction and a return to fair valuations, at which point we will begin building positions in high-quality companies.

• Treasuries remain a major opportunity: As recession risks increase and draw closer, long-term U.S. Treasuries will be one of our key areas of focus.

Wei Cheng
CEO and Chief Investment Officer

Tranquil Tide Wealth

Written on February 28, 2025