CITIC Construction Investment's 2027 US Economic and Asset Outlook: Dollar Credit Waning
The Zhitong Finance App learned that CITIC Construction Investment released the 2027 US Economic and Asset Outlook, stating that the US economy and US assets since 2022 will basically revolve around three core contradictions: AI, finance, and inflation. After experiencing the spread of technology and energy shocks in 2026, the overall economic growth potential of the US declined in 2027 — investment cooled down and consumption suppressed. After experiencing full pricing, US stocks will enter the AI return verification period in 2027 — the cloud looks at cash flow, the model looks at first-mover advantage, and the application looks at pricing power. After five consecutive years of being “overbought,” US bonds will wait for the final round of liquidity shocks in the long bear market in 2027 — non-US funds will return to their home countries and withdraw from the US market. This is also the end of the current round of dollar credit cycles. The direction is actually quite clear; what is left for the market is to wait for the pace and observe the asset wave caused by the current decline in the US dollar.
CITIC Construction Investment's main views are as follows:
What are the main macroeconomic and asset lines of the US in the past five years, and what changes have occurred in 2026?
Over the past five years, the US economy and US assets have been driven by the two main lines of technology and energy. Growth has always been resilient, inflation has never declined, and K-type differentiation continues to deepen; the US financial market has always been attractive, US stocks are strong, and interest rates on US bonds have never been able to fall.
Technology supports growth, and it also supports US assets. Since 2025, AI-related investment has contributed about 40%; AI chain profits and rising stock prices have brought wealth effects, supported consumption by high-income households, and attracted overseas capital to flow into US stocks. AI bonds compete with treasury bonds for long-term capital, and term premiums have rebounded accordingly.
Energy determines the direction of inflation and interest rates. The Middle East conflict broke out in late February, oil prices soared, the Federal Reserve restarted raising interest rates in September, and the 10-year US Treasury yield rose to 5.31% in October. High oil prices erode the actual income of low- and middle-income households, and along with the wealth effects brought about by technology, they are deepening K-type differentiation.
In 2026, total economic resilience and structural differentiation will expand at the same time. Consumption driven by investment and wealth effects supports total volume, yet potential consumption power is weakening, and K-type differentiation is intensifying.
Changes in US assets in 2026: The technology sector led the way, and the performance of other sectors was relatively lackluster. After October, the market began to worry about AI input and output, and the technology sector fluctuated sharply after the mid-term elections in early November; interest rates on US bonds remained high, and fluctuations increased after the geopolitical shock.
What do you think of the US economy in 2027? Growth is weakening under inflation and K-type differentiation
The US economy tends to weaken in 2027. The two pillars supporting 2026 are loosening at the same time: AI capital expenditure is slowing down, investment's drive for growth is declining; the savings rate is only 3.8%, the wealth effect is declining after US stock adjustments, and low- and middle-income households are also being squeezed by high oil prices and K-type differentiation. AI investment and wealth effects are expected to decline simultaneously in 2027, and America's growth advantage will narrow.
AI expands K-type differentiation, profits flow to capital, and labor income slows down. Labor productivity increased by more than 2% year on year, and actual hourly wages have turned negative year over year. On the employment side, entry-level jobs are under pressure first, and the unemployment rate for undergraduate graduates aged 20-24 is close to 7%.
The Republican Party lost the midterm elections due to the cost of living, and young voters turned to the Democratic Party. Nearly 90% of voters see the cost of living as a key factor affecting voting. The percentage of voters aged 18 to 29 who voted for the Democratic Party rose from 54% in 2024 to 72%. The Democratic Party won both houses, and the US entered a split government.
At the same time, fiscal hedging capacity has declined. The non-recessionary deficit rate was over 6%, and interest expenses rose to 4% of GDP. When growth slows, further fiscal expansion will further push up term premiums.
Under a divided government, drastic deficit reduction and large-scale stimulus are difficult to achieve. Stimulus from last year's tax cuts and spending laws subsided, and the Democratic Party pushed for a slight expansion in spending such as the resumption of health insurance subsidies. The two were largely offset, and the fiscal pulse was generally neutral.
The number of game points is increasing: grants due on December 11 are likely to be extended to February-March 2027; federal debt hit the upper limit in the first quarter of 2027, and the risk of a government shutdown is rising.
2027 US bonds: Interest rates rose in the first half of the year or due to the withdrawal of non-US funds, interest rates fell in the second half or a shift from the Federal Reserve
The bear market for US bonds has been discussed for five years. What is more noteworthy in 2027 is whether non-US funding that exceeds US debt will be reversed. The agency determined that interest rates rose in the first half of the year, either due to the withdrawal of non-US funds; interest rates fell in the second half, or from the Federal Reserve's shift.
The long-term bond bear market is not over. The 10-year term premium has risen to a high level since 2014, and there is still room for the 1990-2007 average. The market has already judged that the US fiscal deficit, which continues to operate at a high level, may require a debt shock to reverse it. The supply and continuing pressure on US debt in 2027 has not abated. The geographical conflict has driven the center of inflation upward, and the medium- to long-term bear trend of US debt has not yet come to an end.
The buyer structure has changed, and US bonds are more sensitive to capital flows. In the past five years, price-insensitive buyers have withdrawn, and price-sensitive funds have taken over: the share of US bonds held by the Federal Reserve fell from 26% at the end of 2021 to 14%; overseas official holdings have been reduced by about 360 billion US dollars since the end of 2021. Private funds are held for a short period of time and are easier to withdraw when interest rates fluctuate.
The vulnerability of the global dollar's liquidity is already evident. In addition to China, official institutions represented by Japan are also reducing their holdings of US debt, and Japan's holdings are down about 14% from the February high. This vulnerability will increase as global inflation spreads. If the central transmission of oil prices stabilizes US inflation at a higher level in the first half of 2027, US debt may continue to be pressured.
The Federal Reserve may eventually take over. The Federal Reserve will maintain high interest rates until the end of 2027 and begin cutting interest rates at the end of the year to hedge against this pressure. When the decline in US dollar liquidity hits the long term, in addition to cutting interest rates, the Federal Reserve may expand purchases of medium- to long-term treasury bonds to stabilize the market. There is a possibility that interest rates on US bonds will fall back in the late 2027 period.
The credibility of US policies declined in 2026, and the risk premium for dollar assets rose accordingly. The Treasury interfered in the bond market and failed to reverse the rise in interest rates: after announcing the expansion of long-term bond repurchases in mid-August, 10-year US bond yields once again rose by about 65 basis points. The White House puts pressure on the Federal Reserve, and the independence of the Federal Reserve is being questioned.
Judging from the price, signs of a decline in US dollar credit have appeared. The relationship between gold and real interest rates has been reversed: central banks in many countries are increasing their gold holdings, and reserve assets are scattered from the US dollar to gold. The US dollar itself also requires higher risk compensation. The US dollar index fell 9.4% in 2025, and safe-haven demand combined with the Federal Reserve's interest rate hike in 2026 only brought about a 3.7% rebound.
For US stocks in 2027, the molecular side depends on whether AI can pass verification, and the denominator side depends on whether non-US capital is declining. They both point to the same question: can the tech premium that underpins US assets continue.
The key to understanding US assets in 2027 is a question: can AI deliver returns. AI determines dollar credit. Over the past decade, dollar credit has been based on leading growth, fiscal soundness, and institutional credibility. In 2026, the two fulcrums of finance and the system weakened simultaneously: the federal deficit was close to 2 trillion US dollars, the debt exceeded 40 trillion US dollars, the Treasury interfered with long-term debt, and the White House pressured to raise interest rates.
Dollar credit is increasingly tied to growth and return on capital, while growth and return on capital are increasingly tied to AI. America's strength over the past five years is essentially the strength of technology. The resilience of the US economy, the strength of the US dollar, and even large overpurchases of US debt by non-US capital are all based on technological leadership.
The more adequate the pricing, the more volatile it is. The strength of technology has been realized by historically high stock prices and high valuations of US stocks. The US equity risk premium fell to a negative value, and fluctuations in US stocks and even global technology beneficiary stocks increased in 2026.
Looking ahead to 2027, US stocks will face a double test:
The first test is that AI enters the return verification period. The observation framework is the cloud looks at cash flow, the model looks at first-mover advantage, and the application looks at pricing power. Specifically:
First, the cloud vendor bears capital expenses, and the return depends on the cash flow over the life of the asset; second, the model company undertakes training and computing power contracts, and the return depends on whether the leader can retain customers; third, the application layer undertakes distribution and customer acquisition, and the return depends on whether the efficiency dividend goes to the enterprise or the user. Cloud giants' free cash flow is unanimously expected to be around 150 billion US dollars in 2027. Whether evidence of monetization can be produced before 2028 will determine the valuation trend.
The second test is whether the decline in African and US funding is reconstructing valuations. Over the past five years, non-US capital has continued to exceed US stocks. Foreign holdings of US stocks increased from US$13.7 trillion at the end of 2021 to US$22.2 trillion, accounting for about 20% of the market value of US stocks, more than double that of 2000, and about 2.4 times that of US bonds held by foreign investors. High valuations are compounded by concentrated holdings. Overseas capital only needs to slightly reduce overallocation, which will create continuous selling pressure.
A situation that changed judgment: AI revenue and profit margins were realized ahead of schedule, capital flowed back to the US; the situation in the Middle East eased markedly, oil prices fell sharply, and interest rate cuts were earlier; the sudden contraction of AI investment triggered a deep recession, and US debt turned upward.