Growth Rebounds but Rates Still Restrain Valuations

Chinese and U.S. equities recovered together after a midweek pullback, with growth assets regaining momentum, but higher U.S. long-term yields and growth-inflation pressure continued to limit valuation expansion.

The Week in Context

Chinese equities moved from an early-week gain into a concentrated technology and growth selloff, then recovered unevenly; by the weekend, ChiNext, STAR Market, and smaller-cap indexes outperformed large caps as risk appetite returned to higher-beta assets.
U.S. equities began with value outperforming growth, suffered a broad midweek decline, and then rebounded under technology leadership, although long-term yields rose alongside the recovery.
The improvement in industrial profits was uneven: computing demand supported electronics, servers, integrated circuits, and materials, while autos, construction materials, and parts of the service economy remained weak.
Technology leaders kept expanding AI capital spending, supporting cloud computing, data centers, and equipment demand, but higher depreciation, cash consumption, and financing costs produced a mixed valuation impact.
Slower U.S. growth alongside higher price pressure weakened expectations for cyclical demand and corporate revenue while limiting room for rates to fall, making it the week's main valuation constraint.

Next-week Scenarios

Base case

If equity risk appetite persists in China and the United States while U.S. long-term yields remain elevated, indexes may stay resilient but internally divided, with AI infrastructure and Chinese growth shares relatively active while valuation expansion remains limited.

Upside case

If U.S. trade data ease concerns about growth and price pressure, long-term yields decline, and China's open-market maturities are fully offset, the growth-stock recovery could broaden into smaller-cap equities and a wider range of technology suppliers.

Downside case

If U.S. trade data intensify concerns about slower growth or price pressure and long-term yields rise further, or if Chinese liquidity operations do not fully offset maturities, long-duration technology, rate-sensitive assets, and Chinese financial and property services could come under renewed pressure.

Key Events Next Week

08-04

U.S. International Trade in Goods and Services

The data will shape views on U.S. external demand, domestic growth, and capital flows, potentially affecting cyclical stocks and long-duration valuations through growth expectations and long-term yields.

U.S. Bureau of Economic Analysis