Today's US Stock Market Summary: Chips Hit Hard, Non-Farm Data Dips but Steadies Indices—This Sell-Off Could Be a Market Maker Shakeout for Shares

Let me start with what's been painful over the past two days

On July 2, the major indices appeared quite restrained, with the S&P 500 nearly flat, the Nasdaq leading the decline, and the Dow actually surging in the opposite direction to hit a new all-time high. But if you hold chip stocks, your experience may be completely different, as the drawdown in your portfolio will look much worse than the indices.

I fully understand this, because I'm also in the AI supply chain like everyone else. Short-term volatility is indeed tough to endure, especially when the long-term narrative hasn't broken but stock prices are already hammered by emotions—this is the ultimate test of mindset. But if you hold physical shares or positions with a long enough time horizon, and you believe that the long-term themes of AI computing power, storage, optical communications, and semiconductor equipment are not over, then this two-day pullback is just noise within a larger trend.

A true industrial wave won't end because of a two-day sell-off. The AI sector will face many more fluctuations, shakeouts, and divergences in the future, but as long as corporate earnings, capital expenditure, and supply-demand dynamics remain unrefuted, short-term pain should not be amplified into long-term panic.

The steady rise behind these indices is supported by capital rotation. In the S&P 500, 356 stocks rose while only 145 fell, indicating decent market breadth. Defensive sectors like healthcare, consumer staples, and utilities led the gains, with the S&P equal-weight index even hitting a new all-time high.

Meanwhile, the Philadelphia Semiconductor Index experienced heavy selling for a second consecutive day, with a cumulative drop of over 10% in two days, and all 30 components closed lower. Capital clearly flowed from the previously high-flying AI hardware direction into traditional value, defensive, and some cyclical sectors. Weights in the Dow like Apple, McDonald's, Moderna, Boeing, and Johnson & Johnson all performed well that day.

For investors holding chip stocks, these two days have indeed been uncomfortable. But from a capital flow perspective, this looks more like sector rotation rather than a wholesale withdrawal of funds from the stock market.

However, I have to be honest: institutions allocating to defensive stocks are largely driven by the need to control portfolio volatility and meet minimum position requirements. When market uncertainty rises, they naturally prefer companies with stable cash flows and high earnings certainty. This doesn't mean the market's main theme has completely shifted to value stocks in the second half of the year. Whether semiconductors can stabilize again remains the most critical variable to watch in the coming weeks.

The weak non-farm data actually eased market concerns about policy

June non-farm payrolls came in at only 57k, significantly below expectations, and previous data was revised downward. Breaking down the numbers, the drag came mainly from the leisure and hospitality industry. Due to seasonal hiring effects, this sector lost more than 60k jobs in a single month, having a significant impact on the overall data, but not representing a synchronized weakening across all industries.

The unemployment rate fell to 4.2%, largely due to a decline in the labor force participation rate. Wages rose 0.3% month-over-month, basically in line with expectations, and did not add new inflationary pressures.

After the data release, the dollar and short-term Treasury yields fell, while gold and silver strengthened. Market expectations for the Fed's policy path subsequently adjusted. The market sees reduced urgency for further tightening by the Fed. If the interest rate environment improves gradually, it remains a long-term positive for growth stocks and tech assets.

This is also why the indices as a whole have remained stable, avoiding a systemic decline alongside semiconductors.

South Korea's market has taken the lead in recovery

Today, South Korea's market began to recover first, with the Kospi recouping most of its losses, and Samsung and SK Hynix also rebounding significantly. This round of panic originated in the Korean market first, then spread to the US storage sector. Now that the source has started to stabilize, market sentiment is gradually cooling. If this recovery continues, US storage stocks are likely to see a catch-up rally next week. In retrospect, the news about Meta leasing computing power acted as an amplifier for market sentiment, shaking out many short-term funds, but no new fundamental negatives have emerged. Whenever an industry chain has high prosperity and concentrated positions, the market goes through several rounds of violent shakeouts. This may not be the last time, but for those truly focused on industry logic, what determines long-term trends is still orders, prices, and profits. So in the short term, don't let market makers steal your shares! Stay firm on the bullish AI future!

Sentiment Indicator Plummets: A Counterintuitive Piece of Good News (Figure 1)

There's a set of data from the past two days worth highlighting separately, because it's actually good news. The AAII Investor Sentiment Survey shows that for the week ending July 1, bullish sentiment plummeted from 44.9% last week to 31.4%, while bearish sentiment surged from 36.1% to 42.3%, a drop of more than 13 percentage points in one week—the most dramatic one-week sentiment reversal since 2021. Sounds scary, right? But look at it differently: the market sentiment indicator has never been afraid of pessimism, but rather excessive optimism. The previous one-sided bullishness was the real minefield. Now that more people are bearish, it means there's still a large amount of sidelined and short positions waiting to enter. Once these people see any signs of stabilization in the future, they will become fuel for a rebound. So this spike in bearish sentiment is, in a sense, building up power for a subsequent rebound. Don't let this number make you even more panicked.

Two-Factor Market Dynamics: Hardware Falls, Software and Defensives Rally, or Hardware Rises While Software and Defensives Fall

Over the past two days, the market has shown a relatively rare dual-direction structure, somewhat similar to the market in late 2020. On one side, hardware and semiconductors are falling; on the other side, sectors like software, healthcare, biotech, and finance are clearly catching up. The two lines are almost negatively correlated—the harder semiconductors fall, the stronger software rallies. This tug-of-war is clearly reflected in the intraday charts. The S&P 500 on an hourly chart shows a roller coaster of "surge-crash-recovery," and the daily chart closes with a long-legged doji, indicating divergence between bulls and bears, but neither side has managed to completely defeat the other.

Given this characteristic, the July positioning strategy can be moderately balanced—no need to bet everything on a single line like semiconductors. You can also pay attention to some defensive directions, such as healthcare (XLV), the Magnificent Seven (MAGS), McDonald's, Costco, MRNA, ISRG, Netflix, and other relatively resilient names. On the semiconductor side, it is likely to maintain relatively high-level consolidation before earnings season. When earnings actually come in and break the current market skepticism, that will be the key node for a renewed uptrend.

Seasonal data also supports the market, but be more cautious from August to October

Historically, if there is an emotional shock at the end of June, the first half of July often shows a clear bullish bias. Data has shown extreme historical win rates like 25-0. This is one reason why, despite the heavy sell-off in semiconductors over the past two days, the broader market has not completely broken down. However, I also remind you that historical patterns show that after mid-July, especially in election years, markets typically enter a period of oscillating consolidation. The VIX fear index tends to rise seasonally in August, September, and October. In other words, the current period is still likely a relatively warm window, but the time to be vigilant and carefully control positions may be ahead. I suggest you keep this in mind and be a bit more cautious in the middle to late third quarter.

Gold and Bitcoin: The More the Media Talks Them Down, the More They Deserve Attention

There's a fairly simple but practical principle: when an asset is widely criticized by the media, bad news tends to already be priced in. Gold is a recent example. The media has been hyping "death cross" and "worst quarter in 13 years" narratives. However, after the non-farm data release, gold (GLD) found clear support in the $360-$365 key support range, and the weekly chart is vaguely forming a reversal bottom. Gold-related stocks are even more resilient than spot gold prices, not following them to new lows.

For Bitcoin, I've been tracking and sharing my views consistently. Previously, in response to a Twitter follower comment, I mentioned that market makers took out liquidity below the $58,000 level and quickly recovered it. That kind of false breakdown followed by rapid recovery was very clean and decisive—not a real breakdown. My judgment at the time was that a rebound would start from the $57,500 level, with a first target of $61,000, a second target of $64,000, and a third target of $68,000. My thinking is that leveraging the likely rally in US stocks in July, Bitcoin has a chance to rebound to around $68,000, which is also a FVG (fair value gap) level. There is also a lot of short liquidity stacked above. Market makers are likely to use this US stock rally to fake a breakout above the June 15 high of $67,200, then follow the weaker seasonal window from August to October to pull back and build a more solid bottom, likely in the $50,000-$55,000 range. So around $60,000, I've always considered it a reasonable level for building spot positions in batches. When everyone turns bearish and criticizes Bitcoin one day, that will be the time to act. The various bearish news in the crypto space right now are ultimately because we're still in a bear market cycle, where emotions get amplified.

Summary

The violent swings in storage and semiconductors over the past two days look more like an emotional shakeout triggered by a chain reaction from Asia-Pacific markets, misinterpretation of news, and excessive prior gains, rather than a structural problem with industry fundamentals. The non-farm data appeared soft on the surface, but actually further reduced the probability of rate hikes, pushing the market's pricing of the next rate hike to December. This is a medium-to-long-term positive for growth and tech assets. The news of Meta leasing computing power, when broken down, points more towards "low-end capacity being activated, while high-end demand remains tight."

The good news is that the source of this selling pressure—the Korean market—has already begun to rebound significantly. Sentiment indicators have also reached rare pessimistic extremes. The combination of these two factors means that when US markets open next week, chip stocks are likely to see a decent recovery rally. The general direction for the broader market in July is still likely to push higher first, with the S&P 500 potentially looking at the $7,700 to $7,800 range. However, when entering the seasonally weaker window from August to October, especially in an election year, you'll need to tighten positions and exercise more caution. If you hold physical shares or long-term positions believing in the AI long-term thesis, the discomfort of these past two days is truly temporary. Zooming out, fluctuations of this magnitude often represent attractive opportunities to add positions, not reasons to panic and exit. The market never goes smoothly, and every such shakeout is where patient investors ultimately gain more. As Buffett said, the stock market is a tool for transferring money from the impatient to the patient. Remember that!