Written by: Trend Research

Last Friday, U.S. stocks surged and then fell, with the S&P 500 down 0.25% at 7711.76 points, the Nasdaq down 0.52% at 26402.42 points, and the Dow Jones down 0.02% at 53559.99 points. For the week, the Dow gained 0.03%, the S&P fell 0.08%, and the Nasdaq fell 0.28%. Over the weekend, Walsh delivered a hawkish speech at Jackson Hole, with the probability of a September rate hike rising from 35% to nearly 60%; the U.S. and Iran exchanged strikes over the weekend, with international crude oil up more than 2% at the beginning of Monday's Asian session; Trump announced the agreement for the "largest oil deal in history" with Venezuela. This week's core issue is: the simultaneous emergence of hawkish interest rate hike expectations and escalating geopolitical conflicts, can high valuation tech stocks stabilize under rate suppression.

Walsh's hawkish speech sends interest rate hike probabilities soaring

Federal Reserve Chairman Walsh's speech at the Jackson Hole global central bank annual meeting had a hawkish tone, and the market compared it to the most hawkish statements from the Fed chair since 2009. Walsh implied that if inflation does not fall quickly, rate hikes will occur, with market bets on a September hike increasing from 35% to nearly 60%, and potentially two hikes before March 2027.

The U.S. Treasury market experienced significant volatility. The 10-year Treasury yield rose by 4.18 basis points to 4.7180%, having briefly dropped to a daily low of 4.6485% before bouncing back. The 2-year Treasury yield surged by 11.14 basis points to 4.3434%, having fallen to 4.2135% prior to Walsh's speech and then continued to rise. The surge in short-term rates far exceeded long-term yields, flatting the yield curve, as the market began to price in a more aggressive rate hike path. The U.S. dollar index jumped to a two-week high of 99.703, up 0.55%. The offshore RMB closed at 6.7308 yuan in New York, down 114 points from the previous trading day. The yen fell below the 160 mark, returning to levels seen before Japan's market intervention at the end of July.

Walsh’s hawkish signals directly pressured interest rate-sensitive assets. The small-cap index fell over 1%; spot gold dropped 3.2% to $4454.23 per ounce, ending a three-week winning streak; Bitcoin fell from $81,455 to $76,877 during the session, dropping over 5% at one point.

U.S. and Iran exchange strikes over the weekend, oil prices rise early Monday in Asia

Geopolitics escalated over the last weekend. U.S. officials stated that on Sunday, U.S. military struck two weapon facilities on Iran's Larak Island, alleging that Iran was attempting to lay mines in the Strait. The Iranian military responded that multiple people were injured in the attacks on Larak Island, and they had launched missiles at U.S. bases. The exchange of strikes between the U.S. and Iran signifies an escalation in direct military confrontation.

Prior to this, the Iranian president stated, "If the Strait of Hormuz reopens, the U.S. must fulfill its obligations," with the military stressing that "vessels cannot pass without coordination." Iran's deputy foreign minister claimed that an understanding had been reached with Oman but that there is no rush to reopen the strait. Iran's stance has become harder, once again casting a shadow over the navigation prospects of the Strait of Hormuz.

Last Friday, WTI crude oil closed down 0.16% at $83.40 per barrel, while Brent crude closed down 0.87% at $89.31 per barrel. The weekend's military conflict reversed the previous downward trend in oil prices driven by geopolitical easing, with geopolitical risk premiums being re-accounted into oil prices.

Agreement on "largest oil deal in history" with Venezuela, oil prices pulled in two directions by U.S.-Iran conflict and Venezuelan production increase

Trump announced over the weekend that an oil agreement had been reached with Venezuela, which was later confirmed by Venezuela that both sides had signed a large-scale cooperation agreement. According to reports, the agreement framework is for 25 years and aims to increase Venezuela's daily crude oil production to 1.5 million barrels, involving the development of 17 strategic oil fields, with an investment scale exceeding $100 billion. Trump stated that the U.S. will obtain "majority control" of reserves exceeding 65 billion barrels to replenish the U.S. Strategic Petroleum Reserve.

This agreement far exceeds market expectations. If Venezuela's production volume increases as planned, it will fundamentally change the global supply pattern of heavy crude oil. However, the implementation of the agreement faces multiple uncertainties, as the repair of Venezuela's existing infrastructure takes time, and there are variables in U.S. domestic politics. In the short term, the news of the agreement counters the escalation of the U.S.-Iran conflict, with oil prices seeking balance between the two forces. However, market pricing focus is on interest rates, and Walsh's hawkish speech is the key variable that determined asset direction last Friday, putting the greatest pressure on high valuation tech stocks.

Chip stocks collectively decline, Nvidia gives back half of its gains

The Philadelphia Semiconductor Index fell 3.47% to 11469.66 points last Friday. Nvidia closed down 4.57% at $217.55, giving back about half of its gains after the earnings report. Chip stocks collectively declined, with Marvell Technology down over 10%, and Intel, AMD, Broadcom, and others also weakened. The seven major stocks collectively fell about 1.2%, with Microsoft gaining over 6% for the week after six consecutive days of gains, while Tesla lost about 2%, underperforming the group. The rising interest rates compress the present value of future cash flows, with chip stocks, as typical long-duration assets, being the most affected. Software stocks showed mixed performance, with Workday rising nearly 6%, driven by strong Q2 performance from AI applications; Salesforce's weekly gain exceeded 20%, closing up nearly 2% on Friday. There are clear signs of capital shifting from hardware to the software and application layers.

Focus for this week

Direction One: Repricing of interest rate paths after Walsh's speech. The probability of a rate hike in September has risen from 35% to nearly 60%, whether the 10-year Treasury yield can stabilize above 4.70%, and whether the 2-year yield continues to surge will determine whether the valuation recovery space for high valuation tech stocks is completely closed. The market needs at least one complete trading day to price in Walsh's hawkish signal.

Direction Two: Follow-up evolution of the U.S.-Iran conflict. After the weekend's exchange of strikes, whether Iran takes further retaliatory measures and whether the U.S. conducts additional military strikes will directly affect oil price trends and global risk appetite. Brent crude oil had already risen over 2% in early Monday's Asia session; if the geopolitical situation continues to escalate, oil prices may retest the $90 mark, further raising inflation expectations and rate hike probabilities.

Direction Three: Can the selling pressure on chip stocks stabilize? The Philadelphia Semiconductor Index fell 3.47% in one day, with Nvidia's gains significantly narrowing after the earnings report. If chip stocks continue to weaken at the beginning of this week, it would indicate that the market's pricing logic has shifted from "AI growth narrative" to "interest rate suppression of valuations," which is the signal that needs to be observed most in September.

The current position of the S&P 500 is at 7711.76 points, at the lower end of the volatility range since August; the upper resistance is focused on the previous high of 7800 points, and the lower support is around the mid-August low of 7650 points. The core variables this week are how the expectations for rate hikes and geopolitical conflicts resonate with each other. If U.S. Treasury yields continue to rise along with oil prices, high valuation tech stocks will face double pressures from valuation and earnings expectations; if oil prices fall due to easing geopolitical tensions, the rate shock after Walsh's speech may be partially offset.

The core signal from overnight U.S. stocks is that Walsh's hawkish speech has re-anchored interest rate expectations, temporarily closing the valuation recovery space for high valuation tech stocks. The escalation of the U.S.-Iran conflict provides a new geopolitical premium for oil prices, forming a positive feedback loop between inflation concerns and interest rate hike expectations.