On Tuesday, July 28, global asset pricing is simultaneously facing structural changes: a new round of import tariffs is raising uncertainty about fiscal revenue and the path of inflation. The yield on the 10-year US Treasury bond was around 4.644%, and Brent crude oil fluctuated around $85 per barrel. Although it had fallen from the previous week's high, the year-on-year pressure on energy prices has not yet subsided.

The bond market is not focused on trade rhetoric as US tariffs are repriced.

On February 20, the U.S. Supreme Court ruled that the relevant emergency economic powers laws did not authorize the president to directly impose the broad tariffs previously imposed. Subsequent measures were largely based on Section 301 of the Trade Act to enhance legal continuity. In late July, a new round of tariffs covered approximately 60 trading partners, with base tariff rates primarily ranging from 10% to 12.5%, and additional higher tariffs on some Canadian goods. The market reaction was relatively calm, but this does not mean the risks have disappeared. The core of bond trading is not a single tariff announcement, but whether the effective tariff rates can be maintained in the long term, whether import volumes will contract, and whether fiscal revenue can cover the budget gap. The latest budget forecasts show that the cumulative deficit in the U.S. from fiscal years 2026 to 2035 is expected to reach $23 trillion, an increase of $1.4 trillion from previous forecasts; while tariff revenue can partially offset the expansion of the deficit, it cannot change the large scale of medium- and long-term financing. Therefore, tariffs have two opposing paths to long-term yields. Increased revenue can reduce some bond issuance demand, putting downward pressure on yields; however, if tariffs push up inflation expectations, weaken real demand, or trigger an increase in risk premiums, the term premium may widen instead. The current 10-year yield is above 4.6%, indicating that the bond market has not yet given sufficient credit to fiscal improvements.

Inflationary constraints are intensifying, and tariffs and oil prices may have a combined effect.

The U.S. Consumer Price Index (CPI) rose 3.5% year-on-year in June, while the core CPI rose 2.6% year-on-year, still above the Federal Reserve's long-term inflation target. Energy prices rose 15.7% year-on-year, with gasoline prices rising 26.7%. Tariffs typically do not fully pass on to end prices on the day of implementation. Businesses first buffer costs through inventory, profit margins, supplier bargaining, and exchange rate fluctuations before deciding whether to raise prices. What is truly worth noting is the duration of tariffs. Temporary measures mainly change inventory cycles, while long-term measures will gradually change core commodity inflation through procurement contracts, capital expenditures, and wage negotiations. Crude oil prices have fallen from above $100 per barrel to around $85, easing the inflation trade in the short term, but current levels are still significantly higher than at the beginning of the year. If energy prices rise again while import costs continue to rise, the inflation risk will evolve from a single commodity shock to cost diffusion. In this environment, even if economic growth slows, the Federal Reserve will find it difficult to quickly shift to easing, and long-term Treasury yields may continue to include a high inflation compensation.

A reversal in US stock supply will cause valuations to lose an implicit support.

For many years, corporate buybacks, mergers and acquisitions leading to delistings, and weak IPOs have collectively compressed the number of shares in circulation. Even with modest overall profit growth, a decrease in the number of shares can boost earnings per share and mechanically improve index performance. This structure is reversing in 2026. As of the end of June, total equity financing reached $258.3 billion, a 122.7% increase year-on-year; of which initial public offerings (IPOs) raised $132.4 billion, a 685.6% increase year-on-year. Another statistic shows that 65 traditional IPOs in the first half of the year raised approximately $114.2 billion, significantly exceeding the same period in 2025. The pressure of new supply comes not only from the listing day. IPOs often release only a small number of shares; what truly impacts the secondary market is the continued entry of employee stock ownership plans, early investor shares, and restricted shares into circulation over the next few quarters. At the same time, large technology companies are increasing capital expenditures to build artificial intelligence infrastructure. If operating cash flow cannot fully cover the investment, additional stock issuances, convertible securities, and equity incentives may amplify the dilution effect. This means that when evaluating companies, the market cannot only look at total profit but also needs to consider fully diluted earnings per share, free cash flow coverage ratio, and whether buybacks can offset equity incentives. New share issuance does not necessarily lead to a decline in the index, but it will increase the intensity of capital inflows needed to maintain current valuations. When high valuations and positive net supply occur simultaneously, prices become more sensitive to lower-than-expected earnings and rising long-term yields. The market's existing supply scarcity premium is gradually transforming into a test of financing absorption capacity.