Written by: Chao Xiang Research

Last Friday, U.S. stocks retreated, with the S&P 500 falling 0.18% to 7785.76 points, slightly retreating from the historical high set on Thursday, and accumulating a weekly gain of 0.36%. The Dow Jones Industrial Average closed down 0.20% at 53732.41 points, with a weekly drop of 0.56%; the Nasdaq Composite Index fell 0.28% to 26729.16 points, with a weekly gain of 0.14%. The VIX reported at 16.36, down 0.52%.

The core variable dragging down the market was the unexpected decline in U.S. retail sales data for July, which fell 0.6% month-on-month, marking the largest single-month drop since May 2025, and far below the market expectation of a 0.1% increase. The decline was mainly due to reduced automobile purchases and a drop in online retail. Following the data release, expectations for a rate hike in September were further lowered, with the dollar index temporarily approaching a two-month low. However, U.S. Treasury yields rose, with the 10-year Treasury yield climbing to 4.697%, an increase of about 5 basis points on the day, and a weekly gain of about 4 basis points; the 2-year Treasury yield rose to 4.182%, increasing about 3 basis points on the day. Weak retail data should have lowered interest rate expectations and pressured yields, but yields instead moved higher.

In terms of sectors, storage chip stocks continued to be the most prominent direction, with SanDisk rising over 7% and accumulating a 35% gain for the week, while SK Hynix rose over 20% for the week. The optical communication sector rebounded, with Lumentum rising over 5%. The energy sector gained over 7% for the week, benefiting from the continuous rise in oil prices. However, concerns over AI financing concentrated, with Broadcom falling nearly 6%, leading to a halt in the chip index's three-week rise.

Retail data unexpectedly turns negative, Fed's RMP bond purchases unexpectedly paused

Retail sales in July unexpectedly declined by 0.6% month-on-month, the largest single-month drop since May 2025, and far below the market expectation of a 0.1% increase. Consumer data is a core window for assessing the resilience of the U.S. economy, and the unexpectedly weak performance in July has shaken market confidence in a "soft landing."

On the same day, the Federal Reserve unexpectedly paused its Reserve Management Purchase (RMP) plan. Bank of America expects that the RMP will remain at zero in September, but may return to $10 billion per month for the remainder of the year; TD Securities believes the pause is not a precursor to quantitative tightening, and the Fed may resume monthly RMP purchases of $5 billion to $10 billion as soon as November.

The combination of weak retail data and the RMP pause has resulted in a rare "split" in the Federal Reserve's policy signals, with economic data cooling on one side and liquidity tools tightening on the other. The 10-year Treasury yield rose to 4.697%, not falling despite weak retail data. The shape change of the yield curve indicates that the bond market is pricing in "inflation stickiness + supply pressures," rather than simply an economic recession.

Storage sector skyrockets for the week, SK Hynix chairman states "prices rising too fast"

Storage chip stocks were the strongest sector last week. SanDisk accumulated a 35% increase for the week, while SK Hynix rose over 20% for the week, with SanDisk gaining over 7% in a single day on Friday.

SK Hynix's Chairman, Choi Tae-won, explained the logic behind this surge last week. He stated that the current demand in the storage chip market is experiencing "explosive" growth, with customers requesting supply that is nearly double the original demand, but supply cannot keep up. He frankly stated, "The prices are rising too fast, and I am truly saddened by this." He predicts that next year will see the largest supply gap, with memory demand in the AI era experiencing exponential growth, and even if production capacity doubles in the next five years, it will still be difficult to meet demand, as the storage chip shortage is spreading from the industrial side to the consumer side.

SK Hynix also revealed that it has been intensively exploring potential sites for front-end memory wafer plants in the United States over the past month, directly responding to the urgent need for supply chain localization from U.S. AI chip customers.

After SanDisk proposed a long-term high growth target on Investor Day, its stock price recovered from market skepticism and performed independently. The strength of the storage sector is built on the fundamental logic that "the supply-demand gap cannot be bridged in the short term," in sharp contrast to Broadcom's decline driven by AI financing concerns; also in the AI sector, funds are choosing to chase rises in storage, while opting to exit from Broadcom.

AI financing concerns concentrate and Broadcom falls nearly 6%

Broadcom was the biggest drag on the AI sector last Friday. Bank of America estimates that Broadcom's chip financing projects could incur about $370 billion in senior debt by mid-2029 to fund 20GW of computing power, with approximately $150 billion in additional debt possible just in 2027.

Bank of America does not deny Broadcom's operational fundamentals, but the market is beginning to realize that if future AI computing power demand requires increasingly large financing platforms to sustain, the valuation logic of the AI supply chain must also take into account asset residual value, customer default rates, debt costs, and supplier guarantees.

Broadcom's decline mirrors Nvidia's previous news of reducing the scale of its OpenAI data center guarantees. Reports state that Nvidia is close to signing a financing agreement for a data center in Ohio with OpenAI, but Nvidia's financial guarantee scale has decreased from $250 billion to less than $120 billion. The "leverage narrative" of AI financing is being re-evaluated by the market.

Talking past each other in the Strait of Hormuz, oil prices continue to rise

Geopolitical issues continue to support oil prices. Trump stated that he would declare the Strait of Hormuz U.S. territory after defeating Iran, while Iran's response was firm, stating that such remarks "completely stem from his personal delusion." Iranian Foreign Minister Amir-Abdollahian stated that Iran has not yet decided whether to resume negotiations with the U.S., and the resumption of navigation in the strait awaits suitable conditions. The U.S. Treasury Secretary has also threatened to impose economic strikes on Iran, further increasing the risk premium of crude oil.

WTI crude oil closed up 1.42% at $82.4 per barrel last Friday, accumulating about a 6% gain for the week; Brent crude oil closed up 1.67% at $88.52 per barrel, accumulating about a 7% gain for the week.

The difference in positions between the U.S. and Iran on the Hormuz issue shows no signs of narrowing, making the geopolitical premium on oil prices difficult to eliminate in the short term.

Gold rises for two consecutive weeks, Bitcoin slightly rebounds

Gold has risen for the second consecutive week. COMEX gold futures closed up 0.39% at $4380.4 per ounce last Friday, accumulating a 0.91% gain for the week. Weak retail data and a weaker dollar provided support for gold, but rising U.S. Treasury yields limited the increase. On Monday during the Asian session, spot gold opened at $4384 per ounce, with a daily gain of 0.2%.

Bitcoin reached over $64,000 over the weekend, but fell back to around $63,047 during the Asian session on Monday, remaining basically flat over 24 hours. Digital assets are still waiting for more clear macro signals.

This Week's Focus

This week's market has three core variables to watch.

First is the Federal Reserve meeting minutes. On Thursday morning Beijing time, the Fed will release the minutes from the July FOMC policy meeting. At the meeting on July 29, the Fed remained "steady" for the fifth consecutive time, but three members voted against, leaning towards a 25-basis-point rate hike. The minutes will reveal the extent of the divisions among decision-makers regarding inflation, employment, and the rate path, with the market looking for more clues about the RMP pause.

Second are the earnings reports from retail giants and Chinese concept stocks. This week, retail giants such as Home Depot, Lowe's, and Target will release their earnings. July retail sales have already seen a "cold snap," and the reports and guidance from these retailers, which are at the end of the goods supply chain, will help the market assess the real degree of cooling in consumption. In terms of Chinese concept stocks, popular companies such as Alibaba and Baidu will also release earnings, and against the backdrop of the Golden Dragon Index consistently underperforming, these earnings reports will test whether global funds' attitudes toward Chinese concept stocks will show any marginal changes.

Third is the sustainability of the storage sector. After SanDisk's 35% surge in a week, its stock price is already in an overbought state. The chairman of SK Hynix's comment that "prices are rising too fast" serves, to some extent, as a reminder to the market that the rate of increase has surpassed normal levels. If profit-taking occurs this week, it will be an opportunity to test the fundamental quality of the storage sector.

The S&P 500 is facing dual resistance from the negative retail data and the RMP pause near its historical highs. Currently, about 85% of the S&P component stocks have earnings that exceed expectations, and strong corporate performance has helped the market manage volatility. However, after reaching new highs, new catalysts are needed; the minutes and retail earnings this week will determine whether the market continues upward after digesting these negatives or whether it will face a deeper correction.