Author: qinbafrank
Having weathered a tense weekend, how should we view the market this week? Last Friday night, we provided a detailed analysis of several factors influencing the US stock market 's performance in the latter half of the week. The earliest warning of risk came from SpaceX on Wednesday night. (Related reading: US Stock Market Correction Warning: What are the Real Risks of AI? A Comprehensive Look at the New Fund Flows in Software Stocks, Optical Interconnects, SpaceX, and Bitcoin )
The core logic behind this adjustment:
The AI/semiconductor sector experienced excessive short-term gains, with strong market FOMO and an overcrowded trading structure. Parabolic rallies are inherently unsustainable. This was followed by the massive SpaceX IPO roadshow and subscription frenzy, natural risk aversion ahead of CPI/PPI/FOMC announcements, and strong employment data reinforcing concerns about prolonged high interest rates or even renewed rate hikes. Ultimately, this triggered a concentrated deleveraging of popular tech stocks. Of course, this is a recurring theme; the key question is how to interpret the situation going forward.
1. Let's first review the adjustments made over the past six months.
A similar tech stock plunge occurred last December. Oracle initially triggered concerns about the ROI and capital expenditure of AI investments, followed by a further sell-off after Broadcom's earnings report, only recovering after Micron's strong results and relatively mild inflation data. Both instances involve interest rate expectations being a factor, but the difference lies in the focus: at the end of last year and the beginning of this year, the market was more concerned about the numerator (returns) of AI capex, while this time there hasn't been a consensus that "the AI logic has collapsed." The market is more worried about the denominator—interest rates, inflation, the Fed, geopolitics, and liquidity .
The storage sector is one of the strongest themes in this round of AI trading, boasting the largest gains, the highest growth momentum, and the strongest profit elasticity. Therefore, it's also the most likely target for concentrated profit-taking during the clearing of crowded trades. Taking Micron as an example, its stock price fell from a high of 1089.29 on June 3rd to 864.01 at Friday's close, a pullback of approximately 20.7%. If calculated based on the intraday low of 850.18, the maximum pullback is approximately 22.0%. This exceeds the approximately 20% pullback seen in mid-May, but hasn't yet reached the more extreme panic levels seen during the March war.
KORU, as a 3x leveraged ETF in the South Korean market, can approximate the risk appetite of South Korean technology/storage trading, but it cannot be directly equated with the South Korean index itself. KORU fell from its high of 1279.70 on June 1st to its closing price of 610.01 on June 5th, a pullback of approximately 52.3%; if calculated based on the intraday low of 599, the pullback is approximately 53.2%.
In terms of price levels, this correction has already surpassed the one in mid-May;
In terms of timing, this round of adjustments has lasted for four consecutive trading days, and it is also close to the window of the major short-term declines in the past.
Therefore, a relatively reasonable judgment is that, given that the fundamentals of AI have not been disproven, the short-term downtrend may have already completed a significant portion, and the probability of further sharp declines has decreased .
Therefore, a sharp drop is not certain this week, but the probability of a direct V-shaped recovery is not high. It is more likely to be a sideways consolidation or a slow decline with reduced volume. However, as long as the US Treasury yield does not fall and the CPI/FOMC data has not yet been released, the market will likely remain highly volatile, defensive, and await confirmation and a better time to act .
2. Let's look at some major events from the weekend to today.
1) Friction continues between Israel and Lebanon, with Iran launching missile and drone strikes against Israel. Trump is pressuring Netanyahu not to retaliate while simultaneously trying to maintain the US-Iran agreement line. This line will disrupt oil prices and reignite inflationary pressures in the market.
However, there are no signs yet that the situation has escalated back to the point of being completely out of control.
Judging from Trump's interview last night, he was making every effort to ensure that the US-Iran war would not escalate.
2) Nvidia and SK are expected to announce their collaboration plan on Monday. Jensen Huang's statement was very direct: there are shortages in memory, wafers, advanced packaging, and silicon photonics, and these shortages could last for years. This statement brings back several previously discussed themes in the market.
In the current market conditions, this will provide some support, but it's unlikely to trigger an immediate reversal. Today, we can observe the market performance: after the lower opening, can the core stocks hold steady? Will companies with orders, customers, and a strong industry position be the first to see capital inflows?
If core companies remain stable while speculative stocks fluctuate wildly, that's a sign of divergence.
If even the core companies can't withstand the pressure, this rebound will be very unsustainable.
3. Wait for the macro environment to give the first signal.
The major market surge in the past two months since early April was triggered by three factors: the ceasefire in the Iranian situation, the shortage of computing power, and the accelerated commercialization of AI. These three events unfolded sequentially from early to mid-April, driving a significant market rally.
April was a month of "macroeconomic risks being alleviated → the AI industry logic being amplified again";
The current situation is: "The logic of the AI industry is not bad → but the macro denominator is suppressing valuations → so from an individual perspective, we should wait for the macro to stop bleeding first."
For a true reversal to occur, we will likely need to wait for a "stop-the-bleeding signal" from the macro level first. It doesn't necessarily require a major positive macroeconomic development like the "Iranian rally" in early April; more realistically, the market needs to see the denominator (market capitalization) stop deteriorating .
Why is it necessary for the macroeconomy to give a signal first this time ?
The main issue behind this decline is not that "AI logic has collapsed," but rather that interest rates, inflation, vague meetings, geopolitical factors, the drain on liquidity from mega-IPOs, and an overly enthusiastic and crowded market all combined to impact valuations and deleverage.
In other words, the market is no longer asking, "Is there still demand for AI?"
Instead, it asks:
"If interest rates continue to rise, can AI stocks maintain their high valuations?"
Therefore, in this reversal, the priority is not to look at the industry story first, but to see if the macro pressure has stopped rising .
The sequence will likely be similar: first, the bleeding needs to be stopped at the macro level; at the very least, the CPI must not explode, US Treasury yields must not continue to rise, and the SpaceX IPO must release some liquidity. The FOMC must not become further hawkish. Only after the pressure on the denominator eases will the market return to the numerator of AI, resuming trading on computing power shortages, rising storage prices, AI capex, and accelerated commercialization.
For a reversal to occur, we first need to look at macroeconomic signals; however, a complete improvement in the macroeconomy is not necessary, only a halt to its further deterioration. Once the macroeconomic situation stabilizes, the AI industry's growth logic will quickly resume. Therefore, as discussed last Friday night, a complete reversal in the short term is unlikely, and patience is required.
