With the US and Iran set to sign a peace agreement on June 19 and the Strait of Hormuz expected to fully reopen to navigation, markets have finally received a long-awaited breather. Brent crude has surrendered roughly 80% of its gains since the conflict began, as geopolitical risk premiums rapidly unwind.
However, according to analysis, the retreat in oil prices does not signal that the danger has passed. On the contrary, as geopolitical factors temporarily move to the background, three more persistent pressures are coming to the fore: the first FOMC meeting chaired by new Federal Reserve Chair Kevin Warsh, Washington's initiation of direct intervention in AI industry development, and the liquidity test posed by the largest wave of IPOs in history.
Key Market Vulnerabilities
More alarmingly, these risks are converging atop a market rebound that lacks a solid foundation. Recent gains in US stocks have been driven more by short covering than by active inflows of new capital. Once the covering force diminishes, the market's ability to continue rising will hinge on whether genuine buying interest can take over.
The fragility of market technicals is raising concerns on Wall Street. An expert from Goldman Sachs' trading desk points out that the current wave of macro short covering resembles a repricing for the summer season rather than a trend reversal. Previously overcrowded defensive and bearish positions were forced to unwind in a market lacking clear direction, thereby propelling the index rebound.
Simultaneously, clear signs of sector rotation are evident. The strongest performers recently have not been the previously leading AI sector, but rather defensive industries and a broader "broadening out trade." Investors are actively searching for new trading themes rather than continuing to bet on a single AI narrative.
Fund flows also reveal underlying worries. Data indicates hedge funds have been net buyers of US equity risk assets for four consecutive weeks, but last week's buying primarily came from reducing beta shorts rather than actively increasing alpha long positions. Global prime broker data shows the ratio of short covering to new long positioning was as high as 4.7 to 1.
In other words, the primary force driving the market higher has been the retreat of bears, not the advance of bulls.
Focus on Warsh's First FOMC Meeting
From June 16 to 17, Kevin Warsh will chair his first FOMC meeting since assuming the role of Federal Reserve Chair.
The market's intense focus stems not only from this being his formal debut but also from Warsh's previous criticisms of the Fed's communication framework and his public calls for a "policy regime change."
The timing of his tenure is challenging. Inflation persistence remains, energy price volatility has not fully subsided, and market bets on renewed rate hikes before year-end are heating up.
For Warsh, the challenge lies in simultaneously demonstrating the Federal Reserve's independence to the market while avoiding direct conflict with the White House, which supported his appointment. In this context, any nuance in his wording during his first press conference could be amplified and overinterpreted by the market.
Washington's Direct AI Intervention
Compared to interest rate risk, policy risk is becoming a new variable in the AI trade.
Last Friday, the US Department of Commerce required Anthropic to restrict overseas users' access to its latest models, Claude Fable 5 and Mythos 5. To comply, Anthropic shut down the related model services. This marks the first time the US government has directly imposed restrictions on AI models themselves.
This shift signifies that the competition over "who will dominate frontier AI" is no longer just a contest of technology and capital but is now deeply influenced by national strategy and geopolitical factors.
For investors, this complicates the valuation framework for the AI sector. Where the market previously primarily assessed computing power, model capability, and commercialization progress, it must now also factor in the risk of policy intervention.
IPO Supply Pressure Mounts
Pressure from the supply side is also approaching.
On June 12, SpaceX officially went public at a valuation of approximately $1.77 trillion, with an offering price of $135 per share, marking the largest IPO in the history of the US capital market. Its fundraising size was roughly triple the previous record; this single transaction alone exceeded the total IPO fundraising for all of 2024 and 2025 combined in the US.
And this is just the beginning. Heavyweight AI firms like Anthropic and OpenAI are still awaiting their window to go public. A macro strategist believes that the key to market direction in the coming months may no longer be the macro data itself, but whether the capital markets can continue to absorb such a massive supply of new shares.
With geopolitical risks temporarily easing, the market's focus is shifting from war back to liquidity, policy, and valuations themselves. And these three challenges may prove more decisive for the direction of US stocks in the second half of the year than oil price volatility.
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