Written by: Trend Research

Last Friday, chip stocks collectively plunged, and the semiconductor index officially entered a bear market. The three major indexes saw two consecutive declines, erasing all gains since July. Apple was the only exception among the seven giants, achieving new highs for three consecutive days and briefly surpassing NVIDIA to reclaim the top spot in market capitalization. Over the weekend, the U.S. military's airstrikes on Iran escalated into the eighth night, and commercial traffic through the Strait of Hormuz was reportedly reduced to zero, with crude oil surging nearly 16% over the week. This week's focus turns to the earnings reports of tech giants like Alphabet, as guidance on AI capital expenditures will directly determine whether this round of selling can find a bottom.

Market Performance

The S&P 500 fell 1.01%, closing at 7457.69 points, with a total decline of 1.55% for the week. The Dow Jones fell 0.77%, closing at 52146.42 points, with a total decline of 0.93% for the week. The Nasdaq fell 1.40%, closing at 25520.244 points, with a total decline of 2.90% for the week.

The semiconductor index fell 1.6%, declining nearly 10% for the week and officially entering a technical bear market, down over 20% from its peak at the end of June. NVIDIA fell over 2%, briefly being surpassed in market value by Apple. Apple was the only stock among the seven giants to rise, achieving new highs for three consecutive days, gaining nearly 6% for the week.

SpaceX fell 5.43%, corresponding to a market capitalization of $1.63 trillion, having evaporated more than $1 trillion from its peak of $2.64 trillion in mid-June, with the Starship V3 test being halted due to a failed engine ignition. Netflix fell over 7% as the market worried about its sales growth slowing for two consecutive quarters.

WTI crude oil rose 4.48%, closing at $82.49 per barrel, with a total increase of 15.52% for the week. Brent crude oil rose 4.59%, closing at $88.10 per barrel, with a total increase of 15.91% for the week. Spot gold rose 0.68%, closing at $4012.7 per ounce, but still declined 2.23% for the week. Spot silver rose 0.25%, closing at $56.038 per ounce, with a total decline of 6.31% for the week. Bitcoin briefly fell below $63,000, down nearly 3% from its daily high.

The 10-year U.S. Treasury yield was reported at 4.55%, decreasing by about 1 basis point for the week. The 2-year U.S. Treasury yield was reported at 4.18%, decreasing by about 3 basis points for the week. The dollar index turned to increase in the short term.

Macro and Outlook

The geopolitical situation over the weekend showed no signs of cooling and has become increasingly tense. The U.S. military's strikes on Iran have continued for a full eight nights, with U.S. military bases stationed in Jordan being attacked four times over five days, resulting in the deaths of two American soldiers. Iran's stance has also hardened, with the Supreme Leader directly declaring the previously signed memorandum of understanding invalid, and the military has threatened a "devastating" counterattack against the U.S. Even more troubling is the Strait of Hormuz, where, according to Iran, commercial traffic has completely reached zero. On Monday, as Asia-Pacific markets opened, international crude oil futures jumped 2%, indicating that the market is still pricing in this round of conflict.

The most significant market event this week is Alphabet's earnings report released after the market closes on Wednesday. This company's significance extends beyond its advertising and cloud businesses, as its investment in AI infrastructure is among the largest in the industry. Therefore, what the market really cares about is how management discusses the upcoming expenditures; this quarter's earnings are a secondary issue. A fund manager has warned that if Google's language suggests even a hint of budget tightening, the entire AI industry chain could be driven down by this signal. However, given the current competitive landscape, no major players such as OpenAI, Anthropic, or Meta are slowing down their spending, making it unrealistic for Google to voluntarily apply the brakes at this juncture. In addition to Google, Intel, Texas Instruments, and Tesla will also release their earnings this week, with over 80 companies in the S&P 500 disclosing second-quarter results, and analysts expect overall earnings growth to reach around 26% year-on-year.

Recently, both Samsung Electronics and TSMC reported impressive financial figures, yet their stock prices showed little reaction. This conveys a signal that market expectations for the semiconductor sector have become overly inflated; merely strong numbers are not enough; investors seek concrete evidence that this high prosperity can continue. This logic, applied to Alphabet and Intel this week, will likely result in a similar narrative.

Regarding the Federal Reserve, the market generally believes there will be no action at the late July meeting, with traders placing their bets on the next interest rate hike in December, effectively ruling out a September hike that had been a prior concern. However, opinions within the Federal Reserve are not unified; Cleveland Fed President Mester made a notably hawkish statement last week, asserting that inflation remains relatively high and the labor market is nearing full employment. The bond market has reacted more swiftly, with the yield curve beginning to steepen; in a sense, the bond market has already undertaken part of the necessary tightening, causing the Federal Reserve to be less urgent in taking action.

Trend Viewpoint

The recent sell-off in chip stocks is driven by a straightforward logic: excessive positions combined with concentrated leverage make it easy for a slight shift to lead to a stampede. This is not closely related to the deterioration of the fundamentals themselves. Most institutions believe that this deleveraging process is nearing its end, but a catalyst that can truly restore market confidence is still lacking in the short term.

This week's Alphabet earnings report may indeed serve as that catalyst, or rather, the last straw that breaks the camel's back. Market tolerance for AI hardware stocks is currently very low, as evidenced by Samsung and TSMC's "better-than-expected results but no stock price increase." If Google's capital expenditure guidance shows even the slightest hint of ambiguity, the market will likely interpret this as a signal of contraction for the entire industry, with sell-offs possibly extending from semiconductors to broader cloud computing and AI software stocks.

Apple's recent counter-trend performance is noteworthy; as funds flee from hardware narratives like storage and chips, they are re-embracing Apple as a cash flow certain and relatively conservative valuation target. How long this defensive rotation can last will also depend on whether this week's earnings season provides the market with a clear direction. The situation in the Middle East and the Federal Reserve's policy path are not likely to experience decisive changes in the short term; what truly determines market sentiment this week is the earnings report delivered by the companies themselves.