29 Sept 2025
China's manufacturing PMI showed an unexpected return to growth, though the sustainability of this recovery is questioned amid weak domestic demand, declining foreign orders, and ongoing economic challenges. The US stock market experienced a positive August, driven by tech and AI, but underlying economic risks, high valuations, and historical patterns suggest a potentially turbulent September for investors.
China's manufacturing Purchasing Managers' Index (PMI) unexpectedly returned to growth, exceeding predictions, which provided a momentary relief from tariff pressures. This growth, however, might not be sustainable as domestic demand remains weak, foreign orders have slowed significantly, and factory activity largely stays in contraction.
China's economy is weakening due to price wars, government interventions that have suppressed production, and a deepening recession in the housing market, where home sales are at historical lows despite price reductions. The long-term sustainability of economic growth depends on stabilizing exports, boosting domestic demand, and reducing excessive government interference in market dynamics.
Chinese producers have cut their workforce for five consecutive months, and despite a relatively stable one-year production outlook, high inventories of unfinished and semi-finished goods persist. These backlogs and inventories reflect inadequate domestic and foreign demand, indicating a less than ideal economic growth environment.
The US stock market concluded August with positive performance, as the S&P 500 recorded its fourth consecutive profitable month, achieving approximately 1.9% growth, while the tech sector, driven significantly by artificial intelligence, continued its robust upward trend. Despite overall gains and new record highs, the market experienced some corrections in the tech segment by the end of the month.
The US economy operates in a high-risk environment characterized by trade disorder, persistent tariff pressures, and threats of data manipulation, contributing to the US stock market being the worst relative performer globally since 1993, excluding the influence of AI. Real economic growth remains subdued after inflation adjustments, with stagnant personal consumption, stalled employment growth, and tariff rates at a century-high level, collectively burdening corporate planning.
A 'safety paradox' is evident in the market where investors, drawn to seemingly secure stocks like Costco and Walmart, drive their valuations to unprecedented levels, even exceeding historical averages and those of high-growth companies like Nvidia. This overvaluation, fueled by the perception of consistent profitability across economic cycles, inherently increases the risk of substantial price corrections if even minor growth slowdowns occur.
September is historically considered the worst month for stock market returns, and the upcoming period is fraught with significant economic data releases and a crucial Federal Reserve meeting. Despite these historical trends and a high-risk environment marked by peak investor optimism, low liquidity, and high valuations, an unusual market calm prevails, suggesting a potential for high volatility and significant corrections of up to 5%.
The market often operates irrationally, where perceived safety in assets can lead to overvaluation, diminish future returns, and heighten the risk of a significant price collapse.
| Economic_Area | Key_Indicator | Current_Status | Outlook_Implication |
|---|---|---|---|
| China Economy | Manufacturing PMI | Unexpectedly returned to growth (1% above forecast), offering temporary relief from tariffs. | Growth may be unsustainable due to weak domestic demand and foreign orders; factory activity remains contractionary. |
| China Economy | Overall Economic Health | Weakening economy, historic low housing sales, low inflation; government suppression of production. | Sustainable growth requires reduced government intervention and improved domestic/export demand; high inventory signals weak demand. |
| China Economy | Labor & Inventory | Producers reduced staff for five consecutive months; high inventories of unfinished goods persist. | Reflects insufficient domestic and foreign demand, indicating a less than ideal economic growth environment. |
| US Stock Market | August Performance (S&P 500, Tech Sector) | S&P 500 grew ~1.9% (4th profitable month); tech sector, led by AI, showed strong growth and new records. | Performance driven by Fed rate cut hopes, strong earnings, and AI optimism; large tech firms leading indices. |
| US Economy/Stock Market | Underlying Risks & Relative Performance | High-risk environment (trade disorder, tariffs, data manipulation threats); US stocks worst relative performer since 1993 (excluding AI). | Real growth is sluggish, consumption stagnant, employment growth halted; CFOs fear trade policies, consumer confidence weakened, labor shortages. |
| Investment Strategy | Safety Paradox (e.g., Costco, Walmart Valuations) | Perceived safe stocks are overvalued, trading at high multiples relative to historical averages. | This perceived safety leads to lower future returns and an increased risk of a significant price collapse; irrational market behavior. |
| US Stock Market | September Outlook | Historically the worst month for returns; investor optimism is at its peak despite historical data. | Anticipated turbulence, high volatility, potential 5%+ corrections; low liquidity and high valuations make the market vulnerable to negative news. |
