On September 22, the Nasdaq Composite surged 2.26% to close at 27,244 points, once again setting new record highs for both closing and intraday levels, marking its 22nd record of the year; the S&P 500 hovered near its all-time high, while the Dow Jones Industrial Average stood firmly above the 50,000 mark. What is even more striking is the age of these indices. The Dow Jones was born in 1896, making it 130 years old this year—a century-old record high; the 500 constituent stocks of the S&P 500 were established in 1957, nearly 70 years ago, with 54 of those years being up years; the Nasdaq started at 100 points in February 1971 and now sits at 26,936 points, a roughly 269-fold increase over 55 years. As for A-shares, there is not much to say—it stings even more during the holiday, and many people who opened their trading apps during their travels yesterday were probably left stunned by the declines. Many people always feel that US stocks are at high levels with high risk. The reality is the opposite. So why can US stocks sustain a long-term index bull market? Can it really continue forever?
Modern Economies Are Naturally Bullish
First, let me mention something that investors in A-shares may not feel: modern economies are naturally bullish. Humans lived in agricultural societies for thousands of years, and output levels barely changed. From year 0 to 1800, global per capita output was essentially a flat line. The reason is simple: the ceiling of an agricultural economy is photosynthesis. How much grain a plot of land can produce depends on sunlight, rain, and soil, not on how smart humans are. Natural disasters were the norm—a drought or a locust plague could wipe out decades of accumulation. So the history of agricultural society is a cycle of growth, collapse, and regrowth, unable to break out of that loop. Modern economies are different. Their ceiling is no longer land but knowledge. And the greatest feature of knowledge is that it compounds—the steam engine, electricity, the internal combustion engine, semiconductors, the internet—each technological revolution did not start from scratch but built on the shoulders of the previous one. Thus we see that from 1870 to 2007, US per capita GDP grew at an annualized rate of about 2%. It does not sound fast, but accumulated over more than a century, US real per capita GDP grew more than sevenfold from 1900 to 2010. This pace is not fast, but its strength lies in stability—so stable that occasional recessions are merely a breath in a long race. The S&P 500 fell 37% during the 2008 financial crisis and 18% during the 2022 rate hikes, but every deep pit was later filled by even longer rallies. The logic is clear: a country's index contains its most competitive companies. Under the framework of a modern economy, these companies will earn more and more money, and their stock prices will naturally rise higher and higher. As long as the country's institutions are stable enough, over the long run, the index is naturally bullish. Of course, from the perspective of us A-share investors, it is obviously harder to feel this. So why can US stock indices reflect this natural bull market?
Who Gets to Enjoy This Natural Bull Market
It is a fact that capable companies naturally grow in a modern economic system. But whether companies are willing to share their profits after growing is another matter. The chart below shows the IPO, refinancing, as well as buyback and dividend situations of US-listed companies from 2015 to 2025. Looking at this data on US market financing and dividend buybacks from 2015 to 2025, you can clearly see that the pool of money in the US market is simply growing larger and larger, and the money that listed companies withdraw from the market is negligible compared to the money they put in. In this situation, when there is no negative news, it naturally rises—it is naturally a bull market. You all should have seen last night that Nvidia announced the most massive buyback in human history, near its all-time high stock price, a $150 billion buyback. This is unimaginable in A-shares, where large-scale buybacks are usually reluctant measures taken when stock prices fall; otherwise, spending real silver and gold on buybacks to dump into the market would be considered a sin. This creates a very good positive feedback loop in US stocks: when listed companies are small, they need money and take it from the market to develop and grow. Later, when they can earn a lot of money and can no longer use it efficiently themselves, they return it to the market, letting the market reallocate it efficiently. This also prevents listed companies from reckless operations, blindly expanding capacity, and ruthlessly competing industries to death. The second factor is valuation. There is something very magical about US stocks: the whole world knows to believe in the national destiny and to dollar-cost average into the Nasdaq, yet under such faith, the overall valuation of US stocks has not been pushed to absurd extremes. A-shares keep talking about a slow bull, but as long as people know it is a bull, how can it be slow? Once it cannot be slow, it becomes a crazy bull that passes in a gust of wind. The reason US stock valuations can remain relatively fair, I personally think, has two reasons. One is the investor structure, which is institution-dominated with a relatively value-based consensus. In our A-shares, the understanding of value is currently chaotic, with no consensus. The operations of the national team and quant funds have disrupted the value consensus. Of course, the fact that quant funds can exist so powerfully is also related to our investor structure. Because of the large number of retail investors, ramping up limit-up boards in A-shares attracts attention—you put in 10,000, I put in 10,000, and there is massive liquidity. This is the same as many of our business models—it is a traffic business. The second reason is the short-selling mechanism in US stocks. Many markets fear short selling and halt it as soon as prices fall. The US is different—various short-selling tools are handed to you, whether you are an institution or a retail investor; short selling is as common as everyday meals. The short-selling mechanism in US stocks is extremely developed: hedge funds are willing to spend millions of dollars investigating a company and then short it; US regulators require brokers to report short-selling data to FINRA every half month and make it public. From January to February this year, hedge funds massively shorted US stocks, with nominal short-selling scale of individual stocks reaching a record since 2016—as long as a company's valuation deviates from fundamentals, there is always a group of people in the market waiting to pop it. With these people around, the upper limit of valuation is firmly capped. Although A-shares have a securities lending business, short-selling tools are actually very scarce. The result is: the US stocks that rise the most are actually cheaper in valuation. The Nasdaq 100's PE-TTM is about 30 times, at the 65th percentile since 2011; the S&P 500 is 25.5 times, and the Dow Jones is 24.8 times. Meanwhile, our STAR 50 has a PE of 135 times, 4.5 times that of the Nasdaq, still at the 78th percentile of the past decade; the ChiNext Index is 38 times; the CSI 2000, representing small-cap stocks, has a PE as high as 117 times.
One Side Pulls Together, the Other Scatters Pepper
The third layer is the trading aspect. This may be the most easily overlooked but has the strongest explanatory power. Right now, A-shares only have 1.6 trillion in turnover, and everyone feels liquidity is insufficient. You can compare US stocks and A-shares. The total market cap of US stocks is about 70-plus trillion, with daily turnover of about 900 billion to 1.2 trillion over 26 years. A-shares' total market cap is about 130 trillion, with daily turnover this year between 1.6 trillion and 3.9 trillion. From the ratio of turnover to total market cap, A-shares obviously have better liquidity. Considering that the shareholding concentration of major shareholders in A-shares is significantly higher than in US stocks, and this portion is often not very liquid, A-shares' liquidity is even more explosive. So why does the market feel that A-shares' liquidity is insufficient? Look at two sets of data first. As of the close on September 23 for US stocks, the 100 largest companies by market cap accounted for 58.5% of the total market cap and also took 40.4% of the turnover. As of September 24 for A-shares, the 100 largest companies by market cap accounted for 43.9% of the market cap but only 13.5% of turnover. The same top 100—US stocks absorbed 40% of trading volume, while A-shares barely reached 10%. The remaining 86.5% of turnover was scattered across more than 5,000 companies. This is what A-shares look like every day. A company with a market cap of 3 billion can trade 1.3 billion in a day, with a turnover rate of 42% (such as Dasheng Culture on September 3); Jierong Technology, facing an investigation, went on a 6-day limit-up streak, with a price deviation of nearly doubling in 10 trading days, while its price-to-earnings ratio is loss-making; Haiou Zhugong saw first-half revenue decline 11% and losses expand 53%, yet still had 7 consecutive limit-ups and doubled its stock price in half a month. What do these companies have in common? No fundamentals, and most likely no improvement in the future. But they can burn through a large amount of A-shares' daily turnover. With money scattered heavily in these places, index constituent stocks naturally cannot get their share, and the index naturally cannot rise. And this creates a negative cycle: the index is weak, investing in the index becomes extremely boring, funds are more willing to bet on small and micro stocks, funds further disperse, and the index becomes even weaker. US stocks are the exact opposite. No one pays attention to junk companies, and funds naturally concentrate toward the top; the index strengthens, and more and more money flows into index ETFs. For every $1 flowing into S&P 500 funds, about 40 cents goes to a few giants; passive tools currently hold about half of the S&P 500's exposure. The more money, the stronger the top; the stronger the top, the higher the index; the higher the index, the more money—this is a positive cycle. The long-term bull market in US stock indices comes from this: the long-term natural sustained growth brought by modern economies, listed companies generously giving back after earning money, fair and reasonable valuations under various checks and balances, and funds mainly focusing on quality companies. If these factors do not change, the long-term bull market in US stock indices can continue. A-shares may change in the future, but at present, this is the situation—when US stocks rise, they may not rise; when US stocks fall, they often follow. If you are confused about industry investment; if you are lost on how to find industry leaders and potential companies; if you feel at a loss about sector fluctuations. Then, please scan the QR code to join us, obtain more detailed industry chain analysis and investment strategies, and follow Gelonghui Research Institute to seize opportunities in the wave of investment and share the dividends of the industrial revolution! Disclaimer: The copyright of this article belongs to the research team of Beijing Gelonghui Investment Advisory Co., Ltd. (Duan Yuehan: A0160625050003). This report is produced based on the principles of independence, objectivity, fairness, and prudence. The information is sourced from public materials and collected, summarized, and edited legally, reasonably, and appropriately. The stock market carries risks, and caution is required when entering. Any investment advice in this article is not a basis for your investment buying or selling; you must make independent investment decisions and bear the risks yourself. Any unit or individual that publishes, copies, disseminates, or reprints this article online without the company's permission will be deemed as infringement, and the company will pursue legal liability in accordance with the law.
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