Global stock markets stabilized on Wednesday following a brief sell-off in technology shares. The importance of Micron Technology (MU) earnings has increased, seen as a key test for the AI stock rally. Meanwhile, oil prices fell towards near four-month lows, and the US dollar climbed to a one-year high.
As of the latest update, Dow Jones futures were up 0.08%, S&P 500 futures gained 0.32%, and Nasdaq futures advanced 0.55%.
Technology stocks, which were hit hard on Tuesday, edged higher ahead of earnings from chipmaker Micron, whose products are a crucial component driving the AI boom. However, market sentiment remains fragile, with investors turning to safer haven assets like the US dollar.
European stock indices showed mixed and limited movement in early trading. The Stoxx Europe 600 index held steady, with tech stocks slightly higher, while defense stocks declined. Shares of German defense firm Rheinmetall plunged 15%, dragging Germany's DAX index down 0.5%, after media reports suggested the German government might cancel a delayed multi-billion euro frigate project. Gains in some heavyweight luxury and technology stocks partially offset the impact.
Asian markets were volatile. South Korea's Kospi index rose 3.3%, helping to limit losses for major Asian benchmarks after swinging between gains and losses and having plunged 10% the previous session. Samsung Electronics surged 9.8%, and SK Hynix gained 1.0%. Japan's Nikkei 225 closed down 0.9%, China's Shanghai Composite edged up 0.1%, and Hong Kong's Hang Seng Index rose 0.4%.
Following a drop of over 3% in the previous session for the Nasdaq 100 index due to valuation concerns, Nasdaq 100 futures rebounded 0.4%. S&P 500 futures were little changed.
Micron as an AI Bellwether
Recent market volatility has heightened focus on Micron. The company is one of the biggest beneficiaries of the surge in demand driven by billions in spending on AI infrastructure. Even after Tuesday's 13% drop, the stock is still up over 250% for the year 2026.
Joachim Klement, Head of Strategy at Panmure Liberum, stated, "The main issue for Micron is not Micron itself, but the market's expectations for its Q3 results. Even if Micron delivers a strong quarter and provides solid guidance, it might not be enough to meet the elevated expectations."
Mark Cranfield, a strategist at Bloomberg Markets Live, noted, "The main event for US stocks this week is Micron's earnings after the close on Wednesday. To drive a significant rebound in Nasdaq futures, Micron would need to provide an extremely optimistic outlook. The contract's persistent resistance around 31,000 points is reminiscent of previous highs in October last year and January this year."
Disappointment Reflected in Stock Performance
Further evidence of massive capital inflows into AI infrastructure and its supply chain emerged. South Korea's SK Hynix announced it is seeking to raise nearly $30 billion through a historic US listing.
This offering would join the recent wave of AI-related financing via stock sales. Previously, SpaceX conducted the largest initial public offering ever earlier this month, and Alphabet is planning an $85 billion fundraising.
If Micron and its chipmaking peers fail to meet extremely high expectations with their results and outlook, concerns about an overextended rally could trigger a new wave of stock volatility.
Conversely, strong demand and pricing guidance would help alleviate fears that the AI trade is a bubble about to burst.
Guillermo Hernández Sampere, Head of Trading at MPPM, said, "For high-performing companies that reflect a sector's dynamics, market expectations naturally rise. Rationally, these expectations are hard to meet, and disappointment gets reflected in the stock price."
Dollar Hits New High for the Year
Despite relatively stable equity markets, the US dollar continued to benefit from safe-haven demand as risk sentiment remained fragile.
The dollar index rose 0.3% against a basket of major currencies, marking a third consecutive day of gains and setting it up for its longest winning streak in over a month. It consolidated at its highest level this year, supported by expectations the Federal Reserve could raise rates this year and the recent global tech sell-off.
Signals from the Fed's meeting last week that it might tighten policy before year-end prompted markets to bring forward rate hike expectations.
LSEG market pricing shows a 90% probability of a 25-basis-point Fed rate hike in September. Strong US Purchasing Managers' Index data released on Tuesday further reinforced these bets.
The tech stock sell-off also benefited the dollar due to its safe-haven status.
Strategists at Scotiabank noted they believe the dollar should retreat, as market expectations for the Fed to hike at least once this year are overdone, especially with oil prices falling, which is the very factor that has been lifting the dollar.
They stated, "The dollar also continues to benefit from a significant 'fear premium' due to lingering concerns about geopolitics, particularly issues related to US-Iran conflict."
Non-US Currencies Suffer
On Wednesday, the euro was one of the main casualties of the stronger dollar.
Investors scaled back expectations for further significant rate hikes from the European Central Bank this year while increasing the probability priced in for the Fed to raise borrowing costs.
The euro traded near a one-year low, falling for a third day to $1.1354. It has fallen over 2.5% so far in June, on track for its worst monthly performance since July last year.
The yen also weakened on the day, trading around 161.695, keeping markets alert for potential currency intervention to support the weak Japanese currency.
Minutes from the Bank of Japan's latest meeting, where it raised rates to a 31-year high of 1.00%, showed policymakers discussed rising inflation risks, with some members calling for faster rate hikes to bring borrowing costs closer to levels considered neutral for the economy.
Bitcoin saw only a modest rebound after hitting a 12-day low on Tuesday.
The recent global tech sell-off weighed on cryptocurrencies. Bitcoin rose 0.5% to $62,686, having fallen as low as $61,921 on Tuesday.
Since hitting a 20-month low of $59,125 on June 5th, Bitcoin has struggled to stage a meaningful recovery, trading in a narrow range.
Bond Market Sees Volatility
US Treasury yields were choppy. The yield on the 2-year Treasury note rose 0.7 basis points to 4.206%, while the benchmark 10-year yield fell 1 basis point to 4.48%, as investors continued to price in the possibility of Fed rate hikes this year.
Meanwhile, falling oil prices limited yield gains. Investors will watch a $70 billion US Treasury 5-year note auction, with the US economic data calendar light.
Eurozone government bond yields edged lower, supported by the drop in oil prices, as markets awaited the German Ifo business climate indicator.
This data follows weak preliminary German June PMI figures on Tuesday. However, market moves were limited as inflation concerns persist and further ECB rate hikes remain possible.
Italy and Germany have bond supply scheduled for Wednesday. The yield on the 10-year German Bund fell 0.6 basis points to 2.906%.
Oil Prices Extend Decline
Meanwhile, oil prices extended their decline, with more tankers openly transiting the Strait of Hormuz. Brent crude fell 1.8%, dropping below $76 per barrel.
Ships turning on satellite signals while passing through the waterway indicated increased confidence among ship owners.
The drop in crude prices pushed US diesel prices below $5 per gallon for the first time since mid-March.
As inflation concerns eased, US Treasuries saw modest gains, with the 10-year yield falling 2 basis points to 4.48%.
Significant uncertainty remains regarding the outlook, as the US and Iran have given conflicting accounts of what was agreed in a peace deal, including key elements like verification and control of the Strait of Hormuz.
Analysts at MUFG said, "Although negotiations remain complex and questions persist about the future governance of the Strait of Hormuz, markets are increasingly pricing in a gradual normalization of Middle East energy flows."
US sanctions waivers on Iranian oil sales also supported sentiment, reinforcing expectations of a significant increase in regional crude supply.
Gold Tests Key Support
Gold fell, hitting a low of $4,050, as a stronger dollar made dollar-denominated gold more expensive for buyers.
Analysts at Saxo Bank stated, "Support from rising US Treasuries was limited as falling energy prices eased inflation concerns."
They added, "Meanwhile, an unusually strong positive correlation between gold and the S&P 500 continues to weigh on the gold price, pushing it into the key support range of $4,000 to $4,100."
Although gold is considered a safe-haven investment, during major cross-market sell-offs it often declines as it acts as a source of liquidity. The tech stock plunge added further pressure on gold, which was already weighed down by inflation concerns—inflation risks imply the Fed will raise rates.
It is worth noting that several major international banks have recently lowered their gold price forecasts.
Setting aside the noise of the tech sell-off, Barclays and Stifel see strong earnings and a year-end S&P 500 target of 7,800.
Amid the recent sustained selling in US stocks, both Barclays and Stifel released reports on the same day, raising their year-end 2026 target for the S&P 500 index to 7,800 based on strong corporate earnings prospects.
Barclays analyst Venu Krishna's team noted in a report, "The bull case for equities remains intact, but as Fed policy support fades, visibility on earnings and AI capital expenditure needs to play a larger role."
Barclays raised its 2026 S&P 500 earnings per share forecast from $321 to $337 and provided its first 2027 index target prediction of 8,800 points.
However, the path higher is not smooth. Barclays cautioned in its report that rising inflation concerns and a strong labor market have sparked worries about Fed rate hikes, which could erode equity market performance.
Stifel equity market strategist Thomas Carroll also views strong earnings as the primary catalyst for further stock market gains. However, he also observes signs of persistent rotation out of mega-cap stocks.
Stocks in Focus
Semiconductor company Cerebras released its first earnings report since its May IPO, with its stock plunging 11% on the results. The company reported Q1 revenue of $193.4 million and a loss per share of $0.22. It also warned that its core gross margin would decline from 46.5% in Q1, expecting it to narrow to a range of 36%-38% in Q2.
FedEx reported better-than-expected Q4 results, yet its stock still fell about 6.5%. This report is also the company's final quarterly earnings before spinning off its freight business.
Micron Technology shares were up over 2.5% in pre-market trading, rebounding from Tuesday's 13% plunge. The company is set to report earnings after the US market close on Wednesday, with funds positioning ahead of the event driving the stock higher.
The rebound was not limited to Micron: the memory sector, which was collectively sold off on Tuesday due to the plunge in South Korean tech stocks, saw a broad recovery. Sandisk gained over 2%, Western Digital rose over 1%, and Seagate Technology advanced about 1%.
KB Home reported Q2 revenue of $1.11 billion, beating the Refinitiv analyst consensus of $1.10 billion, sending its stock up 2.5%; however, its earnings per share of $0.43 missed the market expectation of $0.45.
Worthington Enterprises reported weaker-than-expected Q4 results, with its stock plunging 10%. The company reported adjusted EPS of $0.97 and total revenue of $371.5 million; analysts surveyed by FactSet had expected EPS of $1.06 and revenue of $386.5 million.
According to Swaggy Stocks data, Wendy's became one of the most discussed stocks on the Reddit investment community "WallStreetBets," leading to a sharp price surge. Data from S3 Partners shows that short interest as a percentage of Wendy's float is around 23%, raising the possibility of a short squeeze.
Arm shares rose 3%, buoyed by positive target price increases from both UBS and TD Cowen. Both institutions stated that with the rapid adoption of agentic AI, industry computing architecture is undergoing iteration, significantly improving the outlook for the company's central processing unit (CPU) business.
Take-Two Interactive announced that "Grand Theft Auto VI" will begin pre-sales this Thursday, pushing its stock up over 3%. BTIG initiated coverage with a "Buy" rating, stating that this major title will drive steady multi-year improvement in the company's profitability, providing further support for the stock price.
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