Bitunix Analyst: Record Influx of Overseas Funds into US Stocks, Strong Stocks and Weak Bonds Reveal Pricing Discrepancies in Dollar Assets

On September 28, a clear divergence in global capital allocation towards US assets was observed. In the past 12 months ending in July this year, overseas investors net purchased approximately $942 billion in US stocks and funds, marking a new high since 1985; during the same period, the buying intensity of overseas funds for US Treasuries weakened. This reflects that international capital has not fully withdrawn from dollar assets but is instead more concentrated on betting on the profit prospects of AI and technology companies. When corporate earnings expectations continue to be revised upward, US stocks can temporarily absorb higher discount rates, but this support still depends on whether future performance can be realized.

The pressure on the bond market comes from the other end. The yield on the US 10-year Treasury bond has risen to its highest level since 2007, and the spread between the 2-year and 10-year yields has narrowed to 17 basis points, indicating that the market is digesting more interest rate hike expectations while also beginning to assess the risks of overly tight monetary policy. The US deficit remains close to 6% of GDP, and the government's financing needs compete with AI companies' bond issuance for funds, making high yields not just a compensation for inflation but also reflecting supply and term risks in the bond market. If short-term rates continue to rise and the yield curve flattens further, the pressure may transmit from the bond market to banks' net interest margins and corporate financing costs.

Another variable in monetary policy comes from Japan. The Bank of Japan raised interest rates to 1.25% in September, and the latest meeting minutes show that some members discussed accelerating rate hikes as early as July; former policy officials also believe that another rate hike in October is an option that needs serious evaluation. If Japan continues to narrow the interest rate differential with the US, the incentives for yen and Japanese capital allocation may change, further affecting global bond demand. However, the timing of rate hikes still depends on underlying inflation and exchange rate changes and cannot be seen as a predetermined outcome.

Moving forward, the market needs to assess whether the productivity gains brought by AI can support corporate profits while alleviating cost pressures. Bessen believes that technological advancements help expand supply, but the core CPI year-on-year increase remains at 2.4%, higher than the Federal Reserve's 2% target; if inflation does not continue to cool, policy rates may remain restrictive or even tighten further. Currently, the support for US stocks comes from corporate profits, while the pressure on US Treasuries arises from inflation, policy, and fiscal supply; whether the two can continue to diverge hinges on whether earnings growth is sufficient to offset rising capital costs.

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