The most important thing to know today is that the market experienced selling pressure last night, with SPY down by 0.14% and QQQ down by 1.52%. According to ETF Radar, the main driver isn't just a tech correction but rather the 'global rates higher for longer' environment putting more pressure on rate-sensitive assets.

The most noticeable change compared to yesterday is that sectors like real estate and bonds, which are sensitive to high interest rates, showed a clear weakening in their readings. Additionally, QQQ, related to the Nasdaq, shifted from a significant divide to a more negative bias.

Main storyline: High interest rates continue to weigh on real estate and bonds

What happened? The core issue is that the ECB unexpectedly raised interest rates by 25 basis points on June 11. In plain terms, this means rates are now increased by 0.25%. And the market now expects a 90% chance of another increase in September. Additionally, Japan is also pushing for rate normalization, which essentially means that Japan will no longer maintain ultra-low interest rates for an extended period, leading to a rise in global borrowing costs together.

Why does this affect ETFs? To put it simply, higher interest rates mean that many assets need to be discounted at a higher rate to determine their present value. The discount rate is essentially the amount by which future money is reduced to its current value; with higher interest rates, the discount is more severe. Real estate is particularly vulnerable because REITs heavily rely on rental cash flows and refinancing costs. Refinancing costs refer to the price of borrowing new funds when old debt matures. Bonds are also affected as market interest rates rising make older bonds with fixed coupon rates less attractive, putting downward pressure on their prices.

The ETF Radar model is slightly negative towards XLRE, with signals being consistent. XLRE is an ETF for the US real estate sector, which is most directly impacted by interest rates. The data has shifted from neutral to weak this time not due to a single day's price movement, but because of two pieces of evidence moving in the same direction: 'more hawkish Europe and Japan tightening'. Hawkish translates to central banks being more willing to keep interest rates high, even raise them further.

On the same line, the model readings are also negative for PFF, and the evidence is more focused. PFF is primarily composed of preferred stocks, which many use as a tool offering slightly more stability than equities but with higher yields than bonds. However, these assets are also sensitive to interest rates, somewhat sitting between stocks and bonds. When rates rise, they get squeezed on both sides. While prices may not move in perfect sync over the short term, this system shift is fundamentally driven by mounting fundamental pressures.

This line also explains why QQQ has weakened. It’s not that tech no longer has a story, but rather that the positive evidence supporting the semiconductor supply chain is weakening, leaving what remains more susceptible to being compressed by high interest rates. Valuation, in plain terms, is how much the market is willing to pay for a company’s future growth.

Other actionable ETFs overview: Additionally, the ETF Radar is slightly positive on KBE, with signals trending consistently. KBE is a bank ETF; in an environment of higher interest rates, banks could benefit more from widened spreads. Spread, in plain terms, refers to the difference between what banks borrow at short-term and lend out long-term. Moreover, the system is also slightly positive on GLD, with multiple pieces of evidence pointing in the same direction, mainly due to ongoing banking and credit pressures, which continue to drive demand for gold as a safe haven. Safe haven, in simple terms, means that during market tensions, capital flows towards relatively stable assets. Looking at SOXX, data points toward a positive outlook, but there was an abrupt drop yesterday over just one day, so signals still need observation. Here, the short-term market has first cut into tech stocks, but the 20-day trend hasn't yet fully disrupted the longer-term.

In a nutshell, last night’s market appeared to be pressured by tech stocks, but fundamentally it was about 'global rates rising and interest-sensitive assets taking the hit first'. As a reminder, the above is the directional prediction of our systemic quantitative model for general markets and does not constitute personalized investment advice; please consult a licensed investment advisor before investing.