Sell and leave or buy on dips? The powder keg in the Middle East ignites the bull and bear duel in US stocks.

The current position of the US stock market is on the brink of a sensitive threshold: high enough to trigger intense risk aversion selling, but low enough to attract bottom-fishing funds, and breaking this fragile balance only requires a sudden piece of news. In recent days, as traders track developments in the Middle East, the US stock market has experienced severe volatility. With heightened geopolitical tensions, various forces that could boost or suppress the market are engaged in a tug-of-war. Technical charts have given buy or sell signals, while the impact of tariffs and rising oil prices on the economy and corporate profits remains uncertain. Federal Reserve Chairman Jerome Powell remains cautious about inflation risks and has stated that given the high degree of economic uncertainty, "no one has absolute confidence in the path of interest rates." Most pressing is the speculation about the US possibly joining Israel in attacking Iran, intensifying geopolitical tensions and making the market nervous. Richard Privorotsky of Goldman Sachs Group said, "Will the US stand by or be forced into conflict? The market has become accustomed to downplaying such geopolitical news, and its resilience is impressive... perhaps a bit complacent now." According to Goldman's data, hedge funds continued to buy stocks last week, but at a slower rate, while mutual funds saw outflows of $10 billion. Trend-following funds bought stocks relatively modestly, at $2.8 billion, and are more likely to sell than buy in the future. Goldman estimates that these funds, known as program trading advisors, will sell more than $17 billion in the downtrend, more than three times the amount held in a flat or rising market. Other risk-adjusting investors, such as volatility control funds or risk parity funds, are also unlikely to enter the market in the face of new uncertainties. Rebecca Cheong, head of US stock derivative strategies at UBS Group, expects pension funds and target date funds to sell $89 billion in stocks during end-of-month rebalancing, another drag on the stock market in the days ahead. In addition, the support provided by corporate buybacks leading up to the second-quarter earnings season is fading. Corporate performance will soon become the focus for investors to understand the extent of tariff damage. The current market situation has put US stocks in a dilemma - especially as the summer trading doldrums approach, with the S&P 500 Composite Turnover Index typically falling to seasonal lows in July. This means that even small news can have a huge impact on the stock market. The dynamics in the options market are also complex. Charlie McElligott, managing director of cross-asset strategies at Nomura Securities International Corporation, pointed out last week that as spot indices climbed to near historical highs, the skewness of the S&P 500 index and the so-called "volatility of volatility" were quietly rising. On the one hand, the rise in spot indices and volatility often reflects investors chasing the uptrend due to severe underexposure, which can drive the market higher. However, this pattern can also lead to a market collapse under its own pressure. The increase in volatility indicators implies an increase in tail risk. More and more investors believe that buying on dips is appropriate. The reason why a sharp decline has not materialized is because investors expect others to buy on dips, so in the absence of any major macro events, investors either continue to hold or even increase their positions. Ed Yardeni, founder of Yardeni Research, said, "Stock investors should reconsider the same issues as before the Israeli attack on Iran last Friday, including Trump's tariffs, his big and beautiful plan, economic growth, inflation, Federal Reserve policy, and artificial intelligence."