Written by: Chaoxiang Research

On Monday, Washington ignited Wall Street with a social media post. Trump announced late Sunday night that the US-Iran agreement "has been completed," with both sides reaching a 60-day agreement to reopen the Strait of Hormuz, scheduled to be signed on June 19 in Switzerland. This piece of news from the Middle East pressed all buttons: oil prices collapsed, tech stocks soared, bond yields fell, and defensive sectors were left alone. The market did not wait for the signing and preemptively realized all the good news.

Market Performance

The Dow closed up 469 points (+0.92%) at 51,671, setting a new historical high. The S&P 500 rose 1.65% to 7,554 points, the Nasdaq surged 3.07% to 26,684 points, marking its best single-day performance since March 31. However, small-cap stocks, represented by the Russell 2000, only rose 0.72% to 2,965 points, lagging behind on a day of broad gains. All indices were in the green, but the winners were much more concentrated than the index names implied, with technology and consumer discretionary leading, while energy and defensive sectors became outsiders at this feast. Beneath the surface, capital is quietly shifting teams.

Leading the charge were chip stocks, with Micron at the forefront. Micron surged 9.2% in a single day, driving the Philadelphia Semiconductor Index up 4.5% to a new historical high, and even Nvidia, which had recently been sluggish, closed up 3%. Chip stocks are the proxy for the highest beta in AI demand; as geopolitical risks ease and discount rates fall, they rebound the fastest. The US-Iran agreement did not change any balance sheets but added back hundreds of billions in market value for the entire sector with just one piece of news.

SpaceX (SPCX) is another main storyline. Australia's richest person, mining magnate Gina Rinehart, was reported to have built a position of over $1 billion. Following the news, shares jumped over 5% pre-market to $169.48. Cathie Wood’s ARK also disclosed it purchased over $500 million the same day. The intense enthusiasm from the IPO's first day, which shot up 19%, hadn't yet subsided, and institutions collectively rushed to buy this historically largest IPO, reflecting a clear recovery in risk appetite.

Within the Dow, Boeing rose 4.66% in a single day, leading the components. The reopening of the Strait of Hormuz means that global shipping and commercial aviation demand is expected to recover, and this company, which has been repeatedly hampered by safety and capacity issues over the past two years, has, for the first time in a while, stood on the side of good news.

In contrast to the tech stock frenzy, the energy sector suffered losses. Chevron dropped 3.60%, Merck fell 3.37%, and Verizon decreased 2.06%. The oil price collapse directly dragged down energy stocks, while defensive sectors like healthcare and telecommunications were also sold off. Funds are being withdrawn from these slow-moving variables and are rushing towards AI.

Technology and small caps are leading the way, while traditional defensives and energy are declining—this is the clearest capital logic on Monday. The S&P 500 saw 299 components rise on that day, with technology, consumer discretionary, and industrials taking the lead. The energy sector suffered collective selling as oil prices plummeted, and funds from the old economy were rushed towards the AI narrative. The market is betting on whether the narrative of "loosening inflation and shifting rates" can be sustained, rather than simply retreating from risk-off sentiment. In other words, what unfolded that day was a clear directional migration, with funds flowing out of defensives and resource sectors like energy, healthcare, and telecommunications, concentrating in semiconductors and the AI supply chain, rather than a broad-based rally. The lagging of small-cap stocks also confirmed that preferences remain firmly locked on large-cap technology.

Macro and Prospects

The Fear Index (VIX) closed at 16.20, plunging 8.37% in a single day, returning to pre-war average levels, with sentiment noticeably easing after weeks of tension. The yield on 10-year US Treasuries fell over 2 basis points to 4.459%, while 2-year yields decreased over 3 basis points to 4.054%. The peace agreement reopened imaginations of slowing inflation, and bond buying followed. WTI crude oil settled at approximately $80.30 per barrel, dropping over 5% in one day to a new low since mid-March; this was the most volatile asset of the day and was the source of the easing inflation expectations. Gold futures rose 2.81% to $4,357, and BTC increased about 2% to $65,710 since Sunday. The dollar weakened, combined with a return of risk appetite, making both precious metals and cryptocurrencies marginal beneficiaries of this geopolitical thaw.

The celebrations won't last long, as there are two interest rate meetings this week. The Bank of Japan's meeting on June 15 to 16 will conclude on Tuesday, with the market nearly unanimously betting on a 25 basis point rate hike, raising the policy interest rate from 0.75% to 1.0%. About 94% of economists expect this step, which will be another rate hike since December last year for the Bank of Japan, and the focus has shifted to the pace and endpoint of further tightening.

The Federal Reserve's meeting on June 16 to 17 is the first appearance of new Chairman Wash. Maintaining the range between 3.50% to 3.75% is already a consensus; the real focus is how he characterizes the inflation rate, which hit a three-year high of 4.2% in May, and whether the dot plot completely closes the door to rate cuts this year, which relates to the market's entire repricing of the interest rate path for the second half of the year. With these two meetings back to back and the market closed on Friday for the June 19 holiday, all pricing needs to be completed within four trading days.

Chaoxiang Perspective

The peace agreement is a real positive, but the market has treated the Nasdaq's one-day rise of 3% as if "the inflation problem has been solved," running too fast. The real test will be to squeeze three major events into this shortened trading week over four days: on Tuesday, the central bank is highly likely to raise rates to 1.0%, tightening the world's last source of cheap liquidity; on Wednesday, Wash's FOMC will reflect the directional difference in global monetary policy between tightening and maintaining; and on Friday, the signing in Hormuz will bring the expectation of "the agreement has been completed" down to textual details. The chip stocks, which just rebounded from the early month plunge and whose valuations are tightening again, represent the weakest link among these three events—any shortfall in expectations will lead to their sharpest declines. Monday's wave of broad gains seems more like a prepayment of optimistic sentiment for this intensive price discovery; the real accounts will not start to settle until the central bank's statement on Tuesday and Wash's press conference on Wednesday. The focus is on the nuances of wording, not just the interest rate decision itself.