Mixed week for U.S. stocks as value stocks outperform growth stocks, Dow Jones modestly gains

Market Summary

Last week, the stock markets in the Europe, U.S. and China closed lower. Japanese stocks closed higher.

U.S. stocks had a mixed week with value stocks performing better than growth stocks. The Dow Jones Industrial Average made a modest gain. Financial stocks briefly sold off after credit rating downgrades for banks, but recovered as the week progressed.

In Europe, stocks ended largely unchanged, influenced by concerns over a potential economic slowdown in China and Italy's plan for a windfall tax on bank profits. Government bond yields rebounded as investors considered the sustained inflationary.

Japanese stocks rose with optimistic earnings forecasts and improved tourism prospects. The Bank of Japan allowed bond yields to rise more freely, but the yen remained weak. Economic data supported the BoJ's accommodative stance.

Chinese stocks declined as evidence suggested the economic recovery might have peaked. Consumer and producer prices both fell, signaling weak demand and deflation concerns. Chinese property developer Country Garden faced liquidity issues, highlighting challenges in the property sector.

Colombia experienced higher-than-expected inflation, while disinflation trends continued in Mexico.

Major News

On August 9th, Biden issued an executive order banning private-equity and venture-capital investments in advanced tech in China (AI, quantum computing, semiconductors) and requiring companies investing in these sectors in China to inform the government.

China's consumer-price index fell by 0.3% YoY in July, and factory-gate prices declined by 4.4%, signaling potential deflation. Chinese exports dropped by 14.5%, the biggest fall since the pandemic's start.

TSMC, a Taiwanese semiconductor firm, plans to build a factory in Germany, intensifying the US-Europe competition to attract chipmaking investment.

What Caught Our Attention

Despite China is grappling with the dual challenges of slowing growth and dangerously low inflation, the government has largely overlooked crucial policy levers, such as interest rates and central-government spending. One misguided notion is that stimulating the economy is futile due to prevailing debt levels and economic uncertainties. However, this stance actually strengthens the case for robust fiscal easing, which could stabilize employment and foster a climate conducive to borrowing.

Rather than focusing on micro-level actions like extending amusement park hours, the key lies in generating jobs and raising wages through macro-level measures, which would significantly boost consumer confidence and spending. Neglecting to address the deflationary pressures could needlessly prolong China's growth challenges, regardless of whether it aligns with high or low-quality growth objectives.

Source: Kredens Capital Management, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia