- The escalation of geopolitical tensions in the Middle East has led to a rise in crude oil prices, intensifying market concerns about systemic inflation, prompting investors to take profits. On Wednesday, the three major U.S. stock indices collectively retreated from their historical highs.
- Although the artificial intelligence boom continues to drive chip stocks higher against the trend, the large tech giants have generally shown divergence, with only Meta recording gains among the seven giants. Broadcom came under significant pressure after releasing its quarterly earnings post-market.
- Liquidity risks in the private equity market have begun to emerge, with Partners Group limiting redemptions from its private equity fund, leading to a general decline in asset management stocks. Meanwhile, macroeconomic data shows an expansion in the service sector, significantly raising market expectations for interest rate hikes.
Geopolitical Risks Trigger Oil Price Rise and Inflation Concerns
As the U.S. and Iran engage in a new round of strikes, hostilities in the Middle East have escalated again, putting the already fragile ceasefire agreement to the test. The deterioration of the geopolitical situation has directly impacted the commodities market, pushing oil prices higher, further exacerbating market concerns that rising energy pressures could evolve into broader, systemic inflation. Wall Street sentiment has turned cautious as a result, with investors taking profits as major indices hit record highs. The Dow Jones Industrial Average (DJI) fell 620.72 points, or 1.21%; the S&P 500 Index (SPX) dropped 0.74%; and the Nasdaq Composite Index (IXIC) declined 0.89%. Among the S&P components, apart from the energy sector, which recorded gains boosted by oil prices, the technology and financial sectors faced significant pullback pressure, and the small-cap Russell 2000 Index (RUT) also underperformed the broader market.
Divergence in Tech Sector and AI Boom
Against the backdrop of an overall market downturn, the semiconductor sector has shown strong resilience, with the Philadelphia Semiconductor Index (SOX) rising 1.39% against the trend, indicating that market enthusiasm for the artificial intelligence field remains high. Chip manufacturers such as Marvell Technology (MRVL:US), Intel (INTC:US), and Qualcomm (QCOM:US) saw gains ranging from 3.7% to 6.7%. However, there was a sharp divergence within the large tech giant camp, with six of the seven giants closing lower, and only Meta Platforms (META:US) recording a 4.2% gain after raising its forecast. Analysts point out that AI concept stocks currently seem to be trading in an independent market space, to some extent immune to macro and geopolitical risks. However, Broadcom (AVGO:US) fell 4.5% in after-hours trading, and the S&P Software & Services Index continues to face valuation pullback pressure in recent months due to concerns about AI's disruptive impact on the industry.
Private Equity Giant's Redemption Limits Trigger Liquidity Chain Reaction
The financial sector also faced significant pressure on Wednesday, particularly asset management stocks, which experienced a general pullback. The trigger for this phenomenon was Partners Group (PGHN:CH) announcing restrictions on redemptions from one of its private equity funds, valued at $8.6 billion. This move sparked widespread investor concerns about liquidity in the private equity market and the safety margin of asset valuations. As a result of this liquidity shock, the stock prices of several large listed asset management institutions, including KKR (KKR:US), Blackstone Group (BX:US), Blue Owl (OWL:US), and Ares Management (ARES:US), fell by 3.9% to 4.2%. Additionally, market insiders revealed that SpaceX, under Musk, plans to set its initial public offering price at $135 per share, aiming to raise a record $75 billion.
Strong Macroeconomic Data Boosts Tightening Policy Expectations
In terms of macroeconomics and monetary policy, the latest U.S. May service sector activity increased, the labor market remained relatively stable, but business input costs remained high. The Federal Reserve's (Fed) latest Beige Book report also noted that economic activity has strengthened in recent weeks, but the rise in energy prices due to geopolitical conflicts has brought widespread inflationary impacts. New York Fed President Williams reiterated his policy stance, stating that the current monetary policy is in the right place and there is no need to rush to adjust interest rates. However, driven by the rebound in inflation expectations, the CME's interest rate watch tool shows that the financial market currently expects the Fed to raise interest rates at its December meeting, with the probability rising sharply from 9.1% a month ago to 41.1%. If core inflation data continues to rebound, the market's pricing of future terminal rates may face reevaluation.
