Overseas markets saw all three major US indices close lower on Thursday. Despite the US Treasury Department's announcement the previous day that it would at least double its buyback of 10-year, 20-year, and 30-year Treasury bonds, the decline in yields across short and long maturities proved short-lived. Meanwhile, retail bellwether Walmart reported rare weakness in US same-store sales, and renewed US-Iran tensions pushed oil prices higher—together these factors dragged the three major indices down significantly: the Dow fell 1.32%, the S&P 500 dropped 0.87%, and the Nasdaq declined 1%.
On Wednesday morning, the Treasury announced it would intensify its bond buyback efforts, raising the single-operation cap from $2 billion to at least $4 billion. This news initially pressured long-term Treasury yields lower, and stocks briefly turned positive. However, by Thursday, yields climbed once again, offsetting the buyback's positive impact. Some analysts compared the situation to "a flood that has already arrived—piling up a few more sandbags cannot fully resolve the problem of rising Treasury yields."
With the total outstanding US national debt now surpassing the $40 trillion mark—roughly $10 trillion more than US GDP—investors are worried that the government may need to offer higher yields on its debt issuance, otherwise it could struggle to complete its borrowing. The US government has long operated on a mountain of debt, sustaining itself through massive borrowing. Over time, the pressure from fiscal deficits and refinancing needs has grown increasingly heavy, exerting a significant impact on equity markets. Rising Treasury yields equate to higher financing costs, which in turn pressures stock markets downward.
At the same time, rising oil prices add to inflationary pressures, which is another reason long-term yields are reluctant to retreat. Higher oil prices continue to squeeze the disposable budgets of low-income households, corroborating the consumer signals seen from Walmart. US-Iran relations have become tense once again. On Wednesday, President Trump posted that the US would impose the harshest economic actions ever taken against any country on Iran, calling it an unprecedented economic war and isolation. Bessent also stated on Thursday that the US would implement the most severe sanctions in history. This sent WTI crude oil surging about 3% to $86.83 per barrel, while Brent crude rose more than 2% to $93.78 per barrel. Higher oil prices lift inflation levels, reducing the likelihood of Fed rate cuts, which is unfavorable for capital markets.
Recently, Asia-Pacific stock markets have also experienced volatile consolidation. However, unlike the sharp sell-off in July, this round of adjustment is more likely an aftershock following a major decline rather than the start of a new downturn, so there is no need for excessive concern. Over the medium to long term, technological innovation remains the direction of economic transformation, and the tech rally continues to be the market's main investment theme. Focusing on some oversold leading tech stocks to seize the opportunity in the next wave is a relatively effective investment strategy, though attention must also be paid to market volatility risks.
On August 21, the State Council Information Office held a series of press conferences themed "A Strong Start to the 15th Five-Year Plan," where officials from the Ministry of Finance introduced the effects of this year's proactive fiscal policy and outlined the key areas for policy efforts in the second half of the year. Deputy Finance Minister Liao Min stated that the ministry has firmly implemented a more proactive fiscal policy this year: the budgeted fiscal expenditure for the year has for the first time exceeded 30 trillion yuan; the scale of new government bonds has reached 11.89 trillion yuan, the largest in history; and central government transfer payments to local governments have exceeded 10 trillion yuan for the fourth consecutive year, reaching 10.42 trillion yuan. In the second half of the year, fiscal policy will focus on three key areas: accelerating the use of funds, intensifying efforts to expand domestic demand, and strengthening fiscal reform and management. Regarding incremental policies, the Ministry of Finance will promptly formulate and introduce practical and effective incremental policies based on the macroeconomic performance in the second half of the year, providing strong support for achieving qualitative improvement and reasonable quantitative growth in the economy.
The Ministry of Finance's statements are undoubtedly a boost to market confidence. By combining proactive fiscal policy with a moderately loose monetary policy to support economic recovery, the stabilization of the economy is a crucial foundation for the sustained strength of capital markets. In the short term, the focus is on fully leveraging the effectiveness of current policies and accelerating the implementation of various measures; in the medium to long term, the goal is to continuously strengthen the foundation for residents' ability, willingness, and confidence to consume by improving social security capabilities, deepening income distribution system reforms, and strengthening redistribution mechanisms such as taxation and transfer payments. This is favorable for stabilizing the current pace of consumption growth.
The sluggish growth in consumption is one of the reasons behind the overcapacity seen in many industries. Taking strong measures to stabilize consumption and boost domestic demand is now of critical importance. The current macroeconomy shows a clear K-shaped divergence: on one hand, technology innovation areas supported by the "15th Five-Year Plan"—such as artificial intelligence, chips, semiconductors, computing power algorithms, controllable nuclear fusion, quantum technology, and embodied intelligence—have significant growth potential, with related investment continuously flowing in and appearing thriving. On the other hand, traditional industries are experiencing weak growth or even significant operational difficulties. In the face of this divergence, investment should be treated differently: focus on technology innovation directions with sustained growth capabilities, while avoiding companies exhibiting characteristics of sunset industries. By allocating to leading tech stocks and high-dividend red-chip stocks to hedge risks, a strategy of "one hand in tech, one hand in dividend assets" is currently effective.
It is expected that the current market trend has likely not ended; the adjustment remains a short-term correction rather than a shift in the trend. The sharp decline in July was a deflation of the tech bubble, not a bubble burst. Therefore, confidence and patience should be maintained for the future market outlook.