Author: Trend Research

On Wednesday (June 10, Eastern Time), Wall Street was hit simultaneously by two fronts: one was the return to 4.2% inflation and the other was the escalating U.S.-Iran conflict. By the close, the three major indices all settled near their lows of the day.

The Dow Jones plummeted by 953.33 points (-1.87%) to 49,918.78 points, falling below the 50,000-point mark. It's worth noting that on June 4, the Dow hit a historic high, and within a week, the narrative of blue-chip stocks as a "safe haven" was brought back to reality. The S&P 500 fell by 1.62% to 7,266.99 points, and the Nasdaq dropped by 1.98% to 25,169.50 points, retreating about 7% from its historical peak of 27,086.81 points on June 1. The Russell 2000 index only dropped by 1.10%, making it the best-performing major index of the day.

The VIX fear index soared by 11.83% to 22.22, returning to the 20 alert line.

Inflation and War: A New Chapter of an Old Script

The CPI for May, released in the morning, rose by 4.2% year-over-year, reaching a three-year high, while month-over-month it increased by 0.5%. The numbers were unattractive but met market expectations, and the core CPI only rose by 0.2% month-over-month, below expectations. The bond market's reaction said it all: the 10-year U.S. Treasury yield touched 4.55% intraday before falling back to 4.52%, essentially flat. In other words, the CPI alone was not enough to trigger this plunge.

The real catalyst for the sell-off was the geopolitical news in the afternoon. After Iran shot down a U.S. military Apache helicopter, the U.S. military launched a "defensive strike" late Tuesday, and Iran immediately attacked U.S. military facilities in Gulf countries like Bahrain, Jordan, and Kuwait. Trump stated on Truth Social that Iran "delayed negotiations too long, now they must pay the price," and said the U.S. "will hit them very hard." As the news broke, major sectors turned from red to green, with the industrial sector dropping over 3%, and the technology and materials sectors falling over 2%.

WTI crude oil settled up 2.07% at $90.03 per barrel, and Brent rose 1.8% to $93.10. Oil prices and inflation fuel each other, which is the most undesirable combination for the market: interest rate futures show that a 25 basis point rate hike in December has been fully priced in. U.S. equities in 2026 face a Federal Reserve discussing "rate hikes" rather than "rate cuts." This is the real Damocles sword on the valuation front.

AI Giants Queue Up for Cash

If the macro environment is the background noise, then the main theme of U.S. stocks this week is another matter: the AI arms race is burning money to the detriment of shareholders.

Super Micro Computer (SMCI) plummeted by 27.98% to $29.27 on Wednesday, marking a catastrophic single-day decline. The trigger was the company's announcement of up to $7 billion in funding, including $5 billion from a public offering and $2 billion from an ATM stock issuance, to procure components to fulfill customer orders. A company making AI servers took in orders so large that it needed to dilute nearly one-third of its market value to finance them, and the market quickly calculated this.

The Philadelphia semiconductor industry chain took a hit across the board: Broadcom fell 5.12%, TSMC fell 4.44%, NVIDIA fell 3.73%, Micron fell 4.70%, and Tesla fell 3.80%. Apple, on the other hand, slightly rose by 0.35%, due to a straightforward reason: it has the lightest capital expenditure burden among the seven giants.

After hours, the true main character appeared. Oracle's Q4 earnings report was nearly flawless: revenue reached $19.2 billion, a year-on-year increase of 21%, exceeding expectations; non-GAAP earnings per share were $2.11, above the expected $1.97; remaining performance obligations (RPO) surged by $85 billion in a single quarter, from $553 billion to $638 billion. However, the stock price initially plunged more than 7% after hours.

The reasons lie in three other numbers: cloud revenue was below expectations; free cash flow for fiscal 2026 was negative $23.7 billion; at the same time, the company announced plans to refinance about $40 billion through a combination of equity and debt to support data center construction. Just two months ago, this company had laid off 30,000 employees.

Looking at the clues this week: Alphabet seeks $85 billion in financing, Super Micro Computer issues $7 billion in new shares, and Oracle raises another $40 billion in debt. The AI narrative is shifting from "how big the orders are" to "where the money comes from." The market once cheered every dollar of RPO, but now it begins to question the payback period of every dollar of capital expenditure. Oracle's $638 billion order book sits alongside its negative $23.7 billion cash flow on the same balance sheet, embodying the entire contradiction of AI trading in June 2026.

Where Did the Funds Go?

The sell-off was not indiscriminate. Coca-Cola and TJX hit historic highs on Wednesday, and Morgan Stanley even listed Coca-Cola as a sector favorite that day. Selling AI hardware while buying companies selling sugary drinks and discounted apparel, the funds' risk-averse path is strikingly clear and almost harsh. The Russell 2000's minimal drop further verifies this: small-cap stocks had hardly participated in the AI frenzy, and now their retreat is the lightest.

The selling pressure also transmitted to Asia: Korea's KOSPI plummeted 4.5%, with Samsung Electronics and SK Hynix leading the decline; the Nikkei 225 fell by 1.9%, with SoftBank Group dropping 8.3%. The de-leveraging in the AI industry chain is global.

In the view of Trend Research, the nature of this round of decline is more akin to the resonance of the "AI credit cycle" and the "geopolitical inflation cycle," rather than a single event impact. The former determines whether technology stocks' capital expenditures can continue to be supported by the capital market, while the latter determines the direction of risk-free interest rates. Both lines worsened concurrently this week, which is the fundamental reason for the Nasdaq's ongoing hemorrhage since June 5.

One must also speak for the opposing argument: the core inflation only rose by 0.2% month-over-month within the CPI details, and energy shocks have not yet significantly transmitted to service prices; Oracle's cloud infrastructure revenue growth remains at 93%, and demand truly exists; after escalations in previous conflicts in the Middle East, the retracement of risk assets often recovers within weeks. If Thursday's PPI is moderate and any signs of easing in the Iranian situation emerge, a rebound from overselling may happen at any moment.

However, there is a structural change: AI giants have shifted from "building data centers with profits" to "building data centers with equity and debt." Once this step is taken, it is challenging to step back. When the financing market begins to price risk premiums for AI capital expenditure, the valuation anchor changes.

The next test is on Thursday: PPI data and the market digestion of Oracle's management guidance for fiscal year 2027. On the balance sheet, will Wall Street ultimately choose to believe in the order book or in the cash flow?