Capital Flows Return: U.S. & China Stocks Soar to New Highs

Global Markets Rally as Fed Signals Easing and China Stocks Hit Record Highs

Global stock markets remain red-hot, with several indices reaching all-time highs. In the U.S., the Dow Jones and S&P 500 both surged, with the S&P 500 breaking above 6,500 points for the first time in history, while the Nasdaq also climbed higher. Year-to-date (YTD), the S&P 500 has gained more than +10%, reflecting investor confidence in the economic outlook and the momentum from the ongoing AI boom that continues to boost corporate earnings.

Investors worldwide are now closely watching the U.S. Federal Reserve meeting on September 17–18, after Fed Chair Jerome Powell signaled a strong possibility of a rate cut from the current 4.25%–4.50% range. Such a move would likely drive capital flows away from U.S. bonds and back into equities, especially emerging markets. However, concerns about a potential bubble persist, with U.S. equity valuations already well above long-term averages. Notably, legendary investor Howard Marks has warned that the U.S. market may be entering the early stages of a bubble.

In Asia, Chinese equities are once again in the spotlight as the SSE and CSI 300 indices soared to their highest levels in a decade and three years, respectively. So far this year, they have delivered gains of +14%–19%. Despite the rally, valuations remain attractive compared to developed markets, with P/E ratios at just 13–14 times and Market Cap/GDP around 70–80%—well below the bubble-warning threshold. The Chinese government has also rolled out massive stimulus measures, including interest rate cuts, liquidity injections, infrastructure investment, and its “Made in China 2025” strategy, along with strong support for the technology and AI sectors, all of which have helped restore market confidence.

Although China’s economy still faces headwinds from weak industrial activity and sluggish domestic demand, global financial institutions remain optimistic. Goldman Sachs and JPMorgan both forecast further upside, projecting Chinese equities could return 10–12% this year and climb as much as 35% by 2026.

Amid this bullish momentum, experts advise investors to adopt a Core & Satellite strategy: keep around 80% of the portfolio in globally diversified core assets, while allocating 20% to satellite investments targeting growth opportunities such as Chinese equities or thematic plays in AI, clean energy, and healthcare. Regular portfolio rebalancing is also recommended to lock in profits and manage risk.

As legendary investors remind us, Peter Lynch once said, “The best time to buy a stock is when you have the best reason for it. The time to sell is when that reason no longer exists.” Meanwhile, Warren Buffett has famously emphasized, “Never bet against America.” Ultimately, successful investing requires discipline, patience, and alignment with long-term goals.