CITIC SEC released a research report stating that current US stock valuations have significantly converged from their extreme levels seen in 2025, with the valuation midpoint declining while earnings expectations continue to be revised upwards. Based on multi-dimensional valuation data including ROE, equity assets in non-US developed markets are unlikely to offer superior allocation value compared to US stocks. Looking ahead, short-term volatility in the US stock market may increase, with the technology sector facing profit-taking pressure and the retail sector pressured by escalating trade frictions. However, from a medium- to long-term perspective, expectations of both fiscal and monetary accommodation in the US during a midterm election year suggest the upward momentum for US stocks will persist. The report recommends focusing on sectors including technology, manufacturing, resource commodities, energy infrastructure (particularly nuclear power), defense, internet medical diagnostics, and finance (especially banking).
CITIC SEC indicated that the US government has linked its geopolitical interests in Greenland with trade barriers against European nations. If the US's tariff threats against eight European countries materialize, given these countries' significant reliance on exports within their economic structures, some may ultimately compromise with the US due to economic fundamental pressures. Furthermore, while a Danish pension fund announced it would sell its holdings of US Treasury bonds, the total scale is only about $1 billion. Given the absence of systematic follow-on selling from European countries with larger US debt holdings or other global regions, this action is unlikely to trigger a liquidity crisis in the US bond market.
The US government's linkage of its geopolitical demands regarding Greenland with trade barriers, announcing a 10% tariff on imports from eight European countries (Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland) effective February 1st, with a potential increase to 25% in June, has raised market concerns about trade risks re-entering the global arena. On Tuesday, the three major US stock indices closed lower, with the Dow Jones Industrial Average falling 1.8%, the S&P 500 dropping 2.1%, and the Nasdaq Composite declining 2.4%, while the VIX index rose 6.6%. Additionally, concerns about further selling of dollar assets following the Danish pension fund's announcement pushed the 10-year US Treasury yield up to 4.3%.
Under the asymmetric impact of US-Europe trade tensions, there is a possibility that the eight European countries might compromise with the US in the future. If the Trump administration's trade barrier threats materialize, these countries could face significant asymmetric shocks. As of the end of October 2025, imports from these eight European nations accounted for only 10.5% of total US imports, with Germany at 4.4%, France at 2.2%, the UK at 1.8%, and the remaining five countries combined at just 2.1%. The scope and intensity of this trade friction are far less severe than during the period of US global tariff hikes in April 2025. Consequently, the risks of imported inflation and supply chain disruptions for the US itself are relatively manageable. In contrast, given their highly export-oriented economic structures, the eight European countries face potential economic downturn risks. From 2021 to the end of 2024, the average share of goods exports to GDP was 82.5% for the Netherlands, exceeding 30% for Germany (37.6%), Norway (36.4%), Sweden (32.7%), and Denmark (31.9%); meanwhile, the average share for the US was only 7.4%. Therefore, even if European countries retaliate with measures like counter-tariffs, the impact on the US economy is expected to be relatively limited. Considering the export-dependent structures of the eight European economies, they might ultimately seek compromise with the US due to economic fundamental pressures.
Symbolic sales of US Treasury bonds by non-core capital represent merely an emotional disturbance. The Trump administration's geopolitical strategy regarding Greenland has provoked strong discontent in Europe. According to a Reuters report on January 20th, the Danish pension fund AkademikerPension explicitly stated that the credit risks associated with Trump's policies can no longer be ignored and plans to divest its US Treasury holdings by the end of the month. Although AkademikerPension's total assets are approximately $25 billion, its US Treasury holdings at the end of 2025 were only about $1 billion. Thus, even a full divestment is expected to have a minimal practical impact on US bond market liquidity. Among the eight European countries facing US tariff threats, the UK, France, and Norway are major holders of US Treasuries, accounting for 10.1%, 4.5%, and 2.8% of total foreign holdings as of the end of November 2025, respectively, while the remaining five countries, including Denmark, collectively account for only 2.8%. Therefore, divestment by institutions with small holdings is likely more a symbolic protest. In the absence of systematic follow-on selling from major holders like the UK and France or other global regions, this is insufficient to trigger a substantive liquidity risk in the US bond market.
US stock earnings expectations continue to be revised upwards, and the valuation midpoint has narrowed. Since early January, 2026 earnings expectations for US stocks have been consistently upgraded. According to Bloomberg consensus estimates, as of January 17th, the expected earnings growth rates for 2026 for the S&P 500, Nasdaq 100, and the MAG8 (Microsoft, Apple, Nvidia, Google, Amazon, Meta, Tesla, Broadcom) are 13.7%, 12.9%, and 22.5% respectively; expected revenue growth rates are 7.0%, 12.9%, and 16.8% respectively. Looking at changes in sector earnings expectations compared to four weeks prior, expectations for the Information Technology sector were raised by 0.9 percentage points, Communication Services by 0.5 points, and Materials by 0.1 points; whereas expectations for Energy, Healthcare, and Real Estate were lowered by 2.8, 0.7, and 0.4 percentage points, respectively. Regarding valuations, as of January 17th, the NTM P/E ratios for the S&P 500, Nasdaq 100, and Dow Jones Industrial Average were 22.1x, 25.0x, and 21.8x, sitting at the 90.7th, 67.1st, and 99.2nd percentiles of their historical ranges, respectively. Compared to the relatively high valuations on October 29th, 2025, the current valuation levels for the S&P 500 and Nasdaq 100 have narrowed by 4.3 and 10.4 percentage points, respectively; over the same period, the valuation for the Information Technology sector narrowed significantly by 18.6 percentage points. Thus, current US stock valuations have converged from their 2025 extremes, while earnings are showing signs of renewed expansion.
Within the current global developed markets, the substitutability of US stocks' strong growth attributes is limited. A comprehensive comparison of multi-dimensional valuation indicators suggests that among equity markets in developed economies, it is difficult to find asset allocation options with better value than US stocks. As of January 20th, according to LSEG consensus estimates, the NTM EPS growth rates for the MSCI World Index and MSCI Europe Index are 13.8% and 12.1% respectively, both lower than the 15.2% for the S&P 500 and 25.8% for the Nasdaq Composite. Furthermore, the current NTM ROE for US stocks remains around 20%, higher than that of other developed economies globally. Therefore, developed markets outside the US offer relatively lower investment value and have limited investable scale, keeping pressure from capital outflows manageable.
Amid expectations of both fiscal and monetary accommodation in the US, short-term volatility does not alter the medium- to long-term uptrend. Against the backdrop of escalating global geopolitical conflicts, the US technology sector might face short-term profit-taking pressure due to significant prior gains, compounded by potential pressure on the retail sector from escalating US-Europe trade frictions, which could increase short-term market volatility. However, from a medium- to long-term perspective, as the midterm elections approach, coupled with the US's "fiscal + monetary" dual accommodation policies, the upward momentum for US stocks is likely to persist in a favorable macro environment with ample incremental liquidity. The report recommends focusing on five key themes: 1) Technology sectors in the US market where valuations are better matched with earnings; 2) Manufacturing, mid-upstream resource commodities, and energy infrastructure (particularly nuclear power) benefiting from re-industrialization trends and policy support; 3) Defense sectors receiving increased fiscal allocation; 4) Internet diagnostics potentially benefiting from healthcare spending cuts; 5) The financial sector (especially banks) during a potential interest rate cutting cycle.
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