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.

Admitting a fact: yesterday was a significant down day for the US stock market. SPY fell by 2.58% on the day. QQQ dropped by 4.80%. To put it plainly, yesterday was not just ordinary volatility but clear selling pressure on the broader market.

But what is most worth watching today is not 'how much it has fallen', but why the market is afraid of two things at the same time. First, tensions in the Middle East are escalating. Second, strong US employment is making the market more concerned that interest rates will not come down. When these two forces combine, it's like worrying about oil prices while also fearing that borrowing will become more expensive. As a result, tech stocks, real estate, and small caps are all under pressure.

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

First, the judgment on gold has weakened. GLD shifted from slightly neutral to mildly negative. In plain terms, gold was expected to benefit from risk aversion, but this time the market did not significantly follow through. Additionally, the June 5 non-farm payroll data came in at 172k versus expectations of 85k, which is, leading the market to think: The economy isn't cooling down yet, so the Fed doesn't need to cut rates urgently. Higher interest rates are generally not friendly to gold.

Second, sentiment towards emerging markets and Taiwan is more hesitant. EEM has shifted from neutral to slightly negative. EWT, which was previously leaning positive, has returned to a strong divergence. Why is this the case? Due to the strengthening of the US dollar, which essentially means the dollar is stronger, many emerging markets are likely to be under more pressure. As for Taiwan, on one hand, there is support from AI themes for semiconductors, but on the other hand, there is concern about rising energy and geopolitical risks, creating a tug-of-war between bulls and bears.

Third, bond markets are showing some divergence. TLT, representing long-term bonds, has shifted from a mixed outlook to a more neutral stance. However, VGIT, representing intermediate-term US Treasuries, turned positive today. In simple terms: if the is just short-term, funds prefer to seek refuge in intermediate-term bonds first because they have less volatility. Long-term bonds are particularly sensitive to interest rates due to their high duration; in plain language, this means that when interest rates move, long-term bond prices can fluctuate more significantly. Therefore, in a strong employment and higher-interest-rate environment, long-term bonds are not as appealing.

Here are today's three main threads.

First Point: Middle East Risks Rising, but Markets Are Still Buying For Now

What happened? The core issue highlighted repeatedly today is the escalation of tensions between the US and Iran. The data mentions multiple times statements from U.S. officials regarding Bushehr, as well as hints at risks related to the Strait of Hormuz. The Strait of Hormuz is crucial; in plain terms, it acts like a bottleneck for global oil transportation. If something were to happen there, market reactions would first be concerned with oil transport, insurance, and supply issues.

Why does this affect ETFs? The transmission chain can be straightforward. Canal risks rise → market concerns over disruptions to oil transportation → oil prices and insurance costs may increase → inflation pressures could be reignited → the Fed less willing to cut rates → overall market valuations under pressure. So it's not just about oil, but also ETFs in these sectors would be affected as well.

But this time it is interesting. The system did not simply have a positive outlook on all safe havens. For example, IAU, which is a type of gold ETF, the system has a slightly positive view but with moderate confidence. This is because theoretically, geopolitical conflicts should boost demand for safe havens, yet prices in the short term are not fully reflecting this. In plain terms, the market is mouthily afraid of risks, but hands are not.

GLD is weaker still. The system leans bearish on GLD, but with mixed confidence. The reason is that gold has weakened relative to risk assets, compounded by strong non-farm payrolls putting upward pressure on interest rate expectations, making it difficult for gold to find a favorable environment.

Crude oil is not one-sided either. USO, the crude oil ETF, remains on hold for now. While the risk in Hormuz does indeed support higher oil prices, it's still an early signal and prices have already reacted to this previously. XOP, representing upstream oil and gas exploration and production, the system leans positive towards XOP but with limited conviction. In plain terms, if supply concerns escalate, upstream companies typically benefit more than integrated energy firms.

Now for defense. EUAD has turned mildly positive today. The system remains positively biased towards EUAD, but further observation is needed. The logic is that during periods of heightened geopolitical tensions, the market assigns higher valuations to defense companies. This 'defense premium' essentially means that there is an expectation of increased orders, budgets, and attention for military contractors, leading to a willingness to pay higher prices.

Second Point: Nonfarm Payrolls Were Too Strong, Starting to Accept 'Rates Will Be Higher for Longer'

The second main line is the US non-farm payroll on June 5. The number came in at 172k, compared to an expectation of 85k. This is not a mild surprise but a much stronger result. In plain terms, the US employment market is still quite robust.

Why is this important? Because the market fears that without a clear economic slowdown, inflation could be further pushed up by oil prices, leaving no reason for the Fed to cut rates. 'hawkish signals' simply mean that the Fed wants to keep interest rates high. High interest rates mean borrowing and financing are more expensive, and discounting is stricter. To put it in perspective, it's like going from riding a bike with a tailwind to against a headwind. Typically, small companies, real estate, and long-duration assets would find this the most challenging.

So, the system clearly identifies IWM and IYR as the biggest victims. IWM represents American small-cap stocks. The system is definitively bearish on IWM. Why? Because smaller companies rely more on financing, and their cash flows are less stable than those of larger companies. When borrowing costs rise, the pressure is felt first. Moreover, although the broader market was weak yesterday, IWM only dropped by 0.57%, which might seem less severe. However, the system's judgment remains unchanged. It’s important to note that the market disagrees with this in the short term, but the system’s rationale still stands: 'A high-interest-rate environment is less friendly to small-cap stocks.'

IYR is a real estate ETF. The system has a negative judgment on IYR, with significant caution. The logic is straightforward: high interest rates -> higher mortgage and financing costs -> difficult property transactions, valuations, and refinancing -> pressure on the real estate sector. Yesterday, IYR rose by 0.58%, which goes against the system's assessment. Therefore, it must be directly stated that the market disagrees in the short term, but the system's reasoning remains unchanged because real estate is too sensitive to interest rates. A short-term rebound does not mean that long-term pressure has been relieved.

Now for bonds. TIP is the Inflation-Protected Bond ETF. The system has a negative judgment on TIP, with significant risk involved. Don't be misled by its name. Many might think that if inflation concerns return, TIP should perform better. But if reality is that nominal interest rates, or the surface rate of bonds, rise together, TIP will still face pressure. Especially when the market is more concerned about 'higher rates for longer,' TIP does not automatically have an advantage.

BNDX is also negative. The system leans bearish on BNDX, but with average confidence. In plain terms, this is dollar-hedged foreign investment-grade debt. If the dollar strengthens and US interest rates rise, the appeal of foreign bonds could easily be overshadowed.

In contrast, UUP, the USD ETF, received a positive assessment from the system. The increase of 0.65% yesterday served as tape confirmation of this judgment. 'Tape' refers to actual market movements. The logic is straightforward: with geopolitical risks on the rise, money flows back into the dollar; and with strong non-farm data, the USD's yield advantage becomes even more pronounced.

The AI hasn't died, but volatility has clearly increased.

The third main trend, which is of great concern to many, involves semiconductors and AI. SOXX fell by 10.44% yesterday, while AIQ dropped by 8.15%. This certainly looks alarming. However, the system did not immediately turn bearish as a result. The key reason is: direction assessment should not be based solely on one day's performance; rather, it is crucial to evaluate whether the main trend has been compromised.

The trigger event for this comes from the Taipei Computer Show on June 1st. NVIDIA CEO Jensen Huang discussed AI PCs, categorizing the system as part of the 'AI Compute Capex Race.' In plain terms, it means that global spending on buying computing power, chips, and equipment is continuing. As long as this capital expenditure chain has not been broken, the mid-term logic for semiconductors remains valid.

Regarding SOXX, the system remains positive. Although confidence on the stable high-confidence list dropped from 0.75 to 0.60, the main trend hasn't changed. The system is still biased positively towards SOXX, but we need to observe further. Why did confidence drop? Because it has risen too much; many of the good news have already been reflected in prices. Added to yesterday's market downturn and rising interest rate uncertainty, short-term volatility will certainly be greater. 'Price-in' simply means that the good news have already been priced into the stock.

AIQ is similar. The system holds a positive view of AIQ, with significant conviction. However, it must be acknowledged that AIQ fell by 8.15% yesterday, which disagrees with the short-term market sentiment. The system's rationale remains that the of capital expenditure in AI still exists, and neither the funding conditions nor derivative signals have fully deteriorated yet. 'Derivative signals' essentially refer to markets like options that anticipate emotions ahead of time, still leaving room for this main line.

Regarding DTCR, the system has a slightly positive outlook but still requires observation. This is an earlier beneficiary of AI trends. In simpler terms, it's not one of the already well-followed stocks, but it does benefit from the expansion of AI computing power. However, the evidence is currently thin, and liquidity constraints are greater, so it shouldn't be compared to SOXX or AIQ at this stage.

Regarding EWT related to Taiwan, today it is a typical case of bulls and bears fighting. On one side, there is mid-term support for AI semiconductors. On the other side, the risk from the Hormuz region is putting pressure on energy imports and insurance costs. 'Risk premium' essentially means that investors demand higher returns because they are afraid of risks. When the risk premium rises, high beta assets are affected first. 'High beta' means that when the market fluctuates, it typically moves more dramatically. Therefore, there is a divergence in views regarding EWT.

Conclusion

The market is now worried about more than one thing, simultaneously processing both 'heightened Middle East risks' and 'the possibility of higher US rates lasting longer.'

This results in a typical scenario where the US dollar is more stable, small caps and real estate are under pressure, the AI theme hasn't been interrupted, but short-term volatility will be significant, and gold and oil have also not yet formed a particularly decisive one-sided consensus.

[未翻译/untranslated] 接下来 1 到 3 天， 重点看三件事。 第一，看中东消息 有没有从口头升级 变成更实质的航运或供应扰动。 第二，看市场会不会继续重定价降息预期。 白话讲，就是继续接受 “利率高更久”这件事。 第三，看 SOXX、AIQ 这类 AI ETF 能不能在大跌后稳住。 如果稳不住， 说明短线还在去泡沫； 如果能稳住， 说明主线还没坏， 只是市场在重新洗牌。