- Where is the market heading next?

Logic check: Non-farm payrolls came in shockingly low at 57k, and the rate-hike narrative was completely overturned overnight
When the June non-farm payroll data came out, I had just finished dinner, and the screenshots inside the group came even faster than checking the data myself.
57k. The expectation was 115k. Less than half.
As soon as the data was released, U.S. stock index futures jumped straight up, the 10-year Treasury yield plummeted, gold surged, and Japanese stock futures were smashed down.
In just a few minutes, the market accomplished something really frightening: it completely flipped the “rate-hike narrative” that had been priced in over the past month, and restarted pricing for rate cuts.
To understand how heavy the weight of this reversal is, you have to first think back to what we were worried about just last month.
When Walsh first took office as Fed Chair, the market’s prevailing judgment was that he would be hawkish. After the May non-farm payrolls hit 172k, far above expectations, the Cleveland Fed President even said, “I won’t rule out the possibility of a rate hike.”
The market’s probability of a rate hike in July surged from 6% at the beginning of June to 34%, and by year-end the probability of at least two rate hikes exceeded 40%.
Throughout June, the words “rate hike” pressed down on all high-beta sectors, making it hard for them to breathe. Hynix’s circuit breaker, the plunge in the Philly Fed semiconductor index, the stampede sparked by Apple’s price increases—at the bottom of all the sentiment was this rate-hike narrative.
Tonight’s 57k is something that suddenly yanked that pillar out from under it.
I previously used the analogy of two nails: Iran was the first, and the Fed was the second. After the ceasefire last month, that Iran nail was already pulled out. Tonight’s nail wasn’t pulled out by the Fed itself—it was snatched out of their hands and pulled out by the non-farm payroll data.
Even if Walsh still wanted to stay hawkish, facing non-farm payrolls of 57k, he no longer had the confidence to keep propping up rate hikes. Yesterday, he said at a forum in Portugal that “inflation risks have eased”—and that statement itself was a setup.
Now that the data is out, the setup isn’t needed anymore. You can simply ride the current water and pivot directly.
For those of us holding positions in storage and AI supply chains, this could be the most important signal for July this year.
High-beta sectors fear two things most: first, liquidity tightening; second, valuation multiples being compressed. The rate-hike narrative hits both at the same time. Now that the rate-hike narrative has collapsed, and the rate-cut narrative is coming back, both things become tailwinds in the opposite direction.
DRAM, Marvell, optical communications, optical modules—these sectors were previously suppressed by the dual pressure of “rate hikes + high valuations.” Going forward, their path should be much smoother.
Micron has just validated the fundamentals with 85% gross margins. Hynix has its ADR on July 10 and its earnings report on July 23. Now, with an additional “rate-cut narrative returning,” the path for July is almost paved by the market itself.
Next, the next thing to talk about is the traps to watch out for here,
because not every turning point is a no-brainer signal to rush in blindly.