This program is for macro market quantitative analysis and is provided for informational and educational purposes only and does not constitute investment advice, an offer to buy or sell any security, or a solicitation. The direction of the ETFs mentioned is output from a system quant model and is not personalized investment advice, nor does it take into account individual risk tolerance or financial condition. Investments involve risks, and any decisions should be made after consulting with a licensed investment advisor.

What is actually worth watching today isn't a single news headline. Rather, it's the market reordering its priorities among three lines.

The first is that interest rates are still high. The second is that AI still remains strong. The third is that the geo-political conflicts are scary, but they haven't pushed all assets in the same direction.

To put it plainly, today is not a 'full risk-off day'. Rather, it's about 'tech continuing to perform well, rate-sensitive sectors continuing to struggle, while energy and gold are less uniform'. This is crucial for ordinary investors. Because many people assume that during conflicts, gold, oil and gas, and defensive stocks all rise together. But today's data tells us that the market is not so simple.

Let's look at the three biggest changes compared to yesterday.

First, the conviction for SOXX is clearly rising. SOXX is a semiconductor ETF, essentially a basket of chip companies. The system is now quite confident about SOXX's prospects. The reason is straightforward: on June 1st, NVIDIA launched N1X at GTC, extending AI computing demand from data centers to PCs. Additionally, from May 11th to June 3rd, SOXX gained 15.56%, compared to SPY’s 13.54%. In plain terms, this 'outperformance' means that funds are still chasing the chip theme.

Second, IWM and IYR have seen more clear pressure emerge. IWM is a small-cap ETF, which in plain terms refers to smaller American companies. IYR is a real estate ETF, or simply the real estate and REIT sector. The system is quite bearish on both IWM and IYR with high certainty. The core reason is inflation and interest rates. A 'hawkish signal' means the Fed intends to keep interest rates at higher levels. With April's CPI and PPI rising, coupled with 10-year US Treasury yields nearing 4.7% and 30-year yields breaking above 5% multiple times, borrowing costs have risen. Small companies and real estate are often the first to feel the pain.

Third, gold, energy, and volatility have shifted from one-sided markets to more range-bound conditions. GLD has changed from neutral to mixed. XLE has moved from bullish to mixed. VIXY is also back to neutral. What does this indicate? It suggests that geopolitical risks remain, but prices are not providing particularly consistent risk-on confirmation. In plain terms, 'watching' means signals are conflicting and the system is not yet.

Here are today’s three core storylines.

Rule One: AI is Still Adding Fuel to the Chip Supply Chain Fire

What happened? On June 1st, NVIDIA launched the N1X at the GTC conference. The news mentioned that this move is not just about selling chips but expanding AI computing needs from cloud environments to personal computer scenarios. Previously, people thought AI mainly consumed large amounts of power and space in data centers. Now the market is beginning to consider that if PCs need stronger computational power, the entire chain including chips, storage, and could continue to benefit.

Why does this affect ETFs? The transmission chain is actually not complicated. AI demand is greater → cloud vendors and terminal vendors are more willing to spend money on computing power → semiconductor orders and capital expenditures, which are the funds companies use to buy equipment and expand capacity, have stronger support → making chip ETFs more likely to outperform. In plain terms, 'capital expenditure' means that companies are investing in machines and equipment now for future growth. And 'momentum signals still present' means that the upward trend has not yet clearly reversed.

The data is also solid. From May 11 to June 3, SOXX rose by 15.56%, while SPY gained 2.02% over the same period. In the last five days, SOXX has outperformed SPY by 8.66%, and even in the last day, it gained an additional 2.46% more than SPY. This indicates that short to medium-term capital is still favoring the semiconductor sector.

Among the affected ETFs, the system is quite bullish on SOXX. This is one of the strongest themes today. Regarding AIQ, the system has a positive outlook but still needs to observe further. AIQ can be seen as a broader theme related to artificial intelligence. It benefits from the expansion of the AI ecosystem, but the opportunity is not as significant as that of SOXX because AIQ has already outperformed in recent months, and some of the favorable factors are already reflected in its price. For CHPS and DTCR, the system currently holds a wait-and-see stance. The reason is not that the stories are bad, but rather that the signals are still early, and both have also seen gains recently. In short, while the themes are hot, the confirmation level is not yet sufficient.

High interest rates continue to tighten their grip on small caps and real estate.

This is particularly important for ordinary investors. Because it directly relates to which sectors in the market are more likely to be under pressure.

What happened? The FOMC minutes released on May 20 for the April 28-29 meeting sent a strong hawkish signal. In plain terms, this means greater vigilance regarding inflation and no rush to ease policy. Following this, April CPI and PPI readings increased, and since May 13, the 30-year Treasury yield has repeatedly breached 5%, with the 10-year yield approaching 4.7%. The market is now beginning to accept that interest rates will remain higher for longer this year, if not be cut at all.

Why does this affect IWM and IYR? The transmission chain is straightforward. High inflation → the Fed unwilling to cut rates → higher borrowing costs → more expensive financing for small companies → also hurting real estate valuations. 'Yield curve steepening' in plain terms means the market demands higher interest rates before it is willing to lend money. 'Risk premium' simply means investors require a higher return to take on risk. When both interest rates and risk premiums rise, the sectors most easily squeezed are those with high debt levels and particularly sensitive to financing conditions.

So today, the system is quite confident in its bearish view on IWM. Small-cap companies generally have thinner balance sheets, and when financing conditions tighten, their profits and valuations are more vulnerable. The system is also quite confident in its bearish view on IYR. Real estate is even more typical; mortgage rates, development financing, and rental yield discounting are all highly correlated with interest rates. To put it simply, interest rates are like the slope of a floor. When the slope gets steeper, the ball of real estate tends to roll down more easily.

And what about SPY? The system has a positive outlook on SPY, which is not contradictory. SPY represents the S&P 500 index and includes more than just real estate and small caps. Tech stocks have significant weight, and leading companies also have stronger cash flows. If the market's main focus remains on AI and large-cap leaders, we could see a scenario where 'the broader market is stable, but smaller caps and real estate are weaker.' On QQQ, the system currently maintains a neutral stance as there are no sufficiently active new signals to indicate a clear direction today.

Geopolitical risks remain, but the risk-off trade is not coalescing.

The third point is the easiest to misjudge. Because seeing Iran, Ukraine-Russia, and Gaza, many people would instinctively think that gold, oil, natural gas, and defense should all strengthen. However, today's data does not support this.

[未翻译/untranslated] 发生了什么？ 一边是美伊冲突线索、 俄乌袭击升级、 以哈和中非冲突消息仍在。 比如 5 月 24 日， 多条新闻都提到 俄罗斯对基辅发动大规模打击。 另一些线索里， 美伊方向又有相互矛盾的报道， 像美方否认在 Bushehr 附近 有美机被击落。 白话讲， 冲突没有消失， 但有些消息在升级， 有些消息又在降温， 所以市场没有形成 “所有人都往同一个方向跑”的局面。

Why is this important? Because risk assets also have layers. When tensions rise geographically, funds do not necessarily flow into gold first; sometimes they flow into the dollar and US Treasuries instead. This is why BNDX shifted from neutral to slightly negative today. BNDX is an international bond ETF, essentially a basket of bonds from outside the US. The system leans bearish on BNDX but with mixed confidence. The reason is that when geopolitical risks rise, funds tend to favor dollars and Treasuries more than international bonds.

What about GLD? There is a divergence in the system's views on GLD. GLD is a gold ETF. While the US-Iran dynamics theoretically support gold, there hasn't been particularly strong risk premium reflected in prices yet. In plain terms, 'risk premium' means that people are willing to pay extra for security because they fear something. Currently, the market isn't buying this sense of security with gold very strongly.

XLE is similar. XLE is an energy ETF. Views are divided on the system. On one hand, geopolitical risks could lift oil and gas prices. On the other hand, CFTC crude oil net positions are bearish, meaning that large investors' stance in crude oil is not optimistic. Additionally, there is controversy over OPEC+'s production cut path, which provides short-term support to the energy sector but makes a sustained upward push unlikely.

The situation for UNG is slightly better. UNG is a natural gas ETF. The system tends to be positive about UNG, but with moderate confidence. There are concerns about and supply disruptions due to the Iran-US line, which provides support for natural gas. However, over the past 20 days, UNG has already risen by 12.06%, so some risk premium may have been factored in ahead of time. Therefore, it is not without opportunities, but one needs to guard against volatility and potential retracement.

The defense sector is actually more stable. ITA is the Aerospace & Defense ETF. The system has a positive outlook on ITA, with significant confidence. The logic is straightforward: an escalation of conflict -> stronger defense spending and supply demands -> more stable order expectations for defense companies. Moreover, ITA has indeed outperformed SPY in recent windows. EUAD returned to neutral today because although the defense-related narrative remains somewhat positive, it's still premature, and price performance has weakened. In plain terms, the logic is there, but short-term stock prices are not cooperating.

Wrapping up finally.

AI is still leading, high interest rates are still exerting pressure, geostrategic risks remain, but risk-off trades are not uniform.

Over the next 1 to 3 days, focus on three things. First, observe whether the AI sector can continue to outperform the broader market. If SOXX continues to outperform, it suggests that the semiconductor theme is not yet over. Second, watch if long-term US Treasury yields, specifically the 10-year and 30-year rates, will remain at high levels. If they do, the pressure on IWM and IYR will be hard to ease. Third, monitor whether news related to Iran and Ukraine shifts from 'much talk' to 'prices reflecting the news.' If gold, energy, and volatility continue to move independently, it indicates that the market remains focused on rates and AI rather than broad risk aversion.)