It seems like everything is falling

Source: Wall Street Intelligence Circle

The global markets experienced a minor “Black Friday,” with hardly anything rising except the US dollar.

The Asian stock indices dropped by 2%, the Japanese stock market fell 3%, and the Korea tech-heavy KOSPI index plummeted over 4%. Meanwhile, Nasdaq 100 index futures dropped 0.8%.

First, there was no obvious trigger for this decline. US stocks fell overnight without a clear reason (though it wasn’t a steep drop), but as Asian markets opened, the slide intensified. Samsung, SK Hynix, and Japan’s Kioxia all retreated. Investors have been betting on the artificial intelligence theme with great optimism. Any setback could trigger equity portfolio adjustments. The market is now truly entering the “second stage”—faith in AI remains, but investors are now demanding AI prove it is worth such high prices.

Second, as the end of June approaches, we are seeing half-year settlements and asset rebalancing by wealth management institutions. Over the past half year, nearly all funds have been overweight AI and the seven US tech giants. Now, with tech stocks stagnating and AI’s return cycle being questioned, fund managers are highly motivated to “take profits and lock in first-half gains” by the end of June, moving money to safer assets (such as the US dollar) to make the half-year report look attractive. This amplifies the “stampede effect” where, in the absence of clear major negatives, markets fall without obvious reason.

The hard selling pressure from quarter-end settlements will occur in the latter part of the night (after 2 a.m. Beijing time). If US markets open and panic selling occurs, triggering some option defense lines, market makers will have to “aggressively sell spot positions” to protect themselves, creating negative feedback and a domino effect. Conversely, if the defense holds, there could be a sharp short squeeze and rebound near the close.

Third, the good news is that Federal Reserve rate hike expectations have decreased. The anticipation for rate hikes by the December policy meeting is now about 34 basis points—lower than Wednesday’s close of around 36. However, if the market starts to shift its focus from “inflation” to “slowing economic growth,” sentiment may lean further towards defensive positioning.

Tonight (the last Friday in June) is the most important milestone for the first half of the year, which can be described as “undercurrents surging, swords flashing.” “Dip-buying funds” and “mid-year profit-taking sell pressure” are set to face off.