Written by: Trend Research

Trump announced a new round of maritime blockade in the Strait of Hormuz, and the U.S. military confirmed that it started operations on Tuesday afternoon, causing crude oil prices to surge. Federal Reserve Governor Waller stated that if core inflation rises again, they will consider tightening policies in the near term; expectations for interest rate hikes jumped from zero to about 50%. Under this dual blow, the Nasdaq fell 1.55%, dropping below the 50-day moving average; the Philadelphia Semiconductor Index plummeted 4.78%, hitting a recent low; gold briefly broke through the $4000 threshold. In stark contrast, Apple rose 0.71%, reaching a historic high, as funds collectively withdrew from the chip and AI sectors and shifted towards defensive allocations.

Market Performance

The S&P 500 fell 0.79%, settling at 7515.34 points; the Dow Jones fell 0.26%, closing at 52498.64 points; the Nasdaq fell 1.55%, ending at 25873.176 points, below the 50-day moving average; the Nasdaq 100 dropped 1.88%, closing at 29264.103 points; the Russell 2000 declined 0.83%, closing at 2953.166 points; the VIX rose 14.11%, settling at 17.15.

The Philadelphia Semiconductor Index fell 4.78%, closing at 12347.784 points. Nvidia dropped 3.52%, closing at $203.53; Broadcom fell 3.98%; AMD fell 4.21%; ARM dropped nearly 8%; Micron's decline exceeded 7%; SanDisk dropped over 12%. TSMC ADR fell 2.88%. SK Hynix's U.S. stock ADR fell over 9%, with its Seoul-listed shares plummeting 15.37%, marking the largest single-day decline in history.

Apple rose 0.71% to $316.91, reaching a historic high during trading; Microsoft rose 1.53%; Amazon rose 0.80%; Meta fell 1.86%; Tesla fell 3.19%; Google A fell 1.31%. The seven giants index fell 0.96%.

Semiconductor ETFs fell 4.16%; global technology stock index ETFs fell 2.88%; energy sector ETFs rose 3.03%.

WTI crude oil rose nearly 10%, reaching a nearly month-high, and climbed above the 50-day moving average. Spot gold briefly plunged over 3% to $3992.48, breaking through the key support of $4000. Spot silver also faced pressure. Bitcoin fell over 3%, briefly dropping below $62000; Ethereum fell about 3%.

The yield on 2-year U.S. Treasuries skyrocketed 6 basis points to 4.28%. The real yield on 10-year bonds surged to 2.34%, the highest since April last year. The dollar index rose significantly, up more than 0.5% from the intraday low.

Macroeconomics and Outlook

Trump announced the reinstatement of the maritime blockade against Iran, with the U.S. imposing a 20% toll on goods transported through the Strait of Hormuz. The U.S. Central Command confirmed the blockade operations started on Tuesday afternoon. The commercial traffic in the Strait of Hormuz dropped to only 3 times every 24 hours after the announcement, a historic low, reflecting that commercial shipping companies are choosing to avoid the risk in the area. Goldman Sachs' baseline scenario predicts that Brent oil prices will fluctuate in the range of $75 to $85, but if the U.S. military directly attacks maritime energy infrastructure or multiple key straits are simultaneously disrupted, oil prices could surge above $100.

Federal Reserve Governor Waller signaled a hawkish stance in New York, clearly stating that if this week's core inflation data rises again, the FOMC will consider tightening policies in the near future. He emphasized that "no matter what indicators are used, inflation has been rising this year," expressing concern over the trend of core inflation. This statement changed the market's expectation of the Fed maintaining patience, with CME data indicating that the implied probability of an interest rate hike in July has soared to nearly 50%.

The rapid rise in real yields became the core pressure point for the market that day. The real yield on 10-year bonds skyrocketed from 2.11% at the end of June to 2.34%, approaching the critical threshold of 2.40%. The rate of change in real yields, rather than its absolute level, has a larger impact on equity markets. A rapid breakthrough above 2.40% could have widespread negative effects on the entire stock market. The surge in real yields also boosted the dollar, putting downward pressure on gold prices.

Concerns about the sustainability of AI capital expenditure cycles have spread from questioning the demand side to skepticism about the entire investment cycle itself. The South Korean stock market plummeted 8.95%, having dropped a cumulative 27% from its June highs. This extreme decline's spillover effect directly transmitted to U.S. stocks, with AI infrastructure suppliers and chip manufacturers both facing sell-offs, the latter experiencing larger declines. SK Hynix recorded its largest single-day decline in history, reflecting market expectations of a rapid cooling in demand for memory chips.

In contrast, Apple's strong performance has attracted a significant inflow of funds. Apple has risen in 13 out of the last 16 weeks, being just about 5% short of surpassing Nvidia to become the world's largest company by market capitalization. However, analysts' interpretations of this trend are divided into two camps: the fundamental camp believes that the support factors lie in the autumn device replacement cycle and stable gross margins; the technical camp argues that this is a defensive rotation from high-volatility tech stocks to low-volatility assets, with funds shifting internally in the tech sector from bearish memory chip companies to stable balance sheet firms like Apple.

Trend Research Perspective

Monday's market decline is essentially the result of the combined effects of geopolitical and monetary policy factors. The actual blockade in the Strait of Hormuz has pushed oil prices to current highs, while Waller's statements shifted interest rate hike expectations from market digestion to actual actions. The combination of these two signals suggests that the pressures facing equity assets have shifted from anticipated to reality.

The sharp decline in chip stocks reflects a collective skepticism about the sustainability of AI investments. In recent weeks, the market has begun to doubt whether companies will maintain the previously promised level of capital expenditures, and SK Hynix's 15% single-day drop indicates that investors have provided the answer: they believe demand is plummeting.

Apple's strong performance may merely be a reluctant choice for funds amidst panic. When the AI sector is deemed to have "overly optimistic growth expectations," funds need a safe harbor, and Apple became the lowest volatility option. However, whether this defensive rotation can be sustained depends on whether the upcoming earnings season can validate whether companies are truly cutting AI spending. If earnings reports show that companies are still increasing AI investments, Apple's strength may only be proven to be a short-term hedge, and funds will quickly flow back into chip stocks.

The key variable is Wednesday's CPI data. If the data shows that inflation has indeed accelerated again, Waller's statements will not be mere bluster, and expectations for interest rate hikes will further heat up, leaving room for continued declines in U.S. stocks.