Middle Eastern Risks Recede, U.S. Stocks Face Real Test: Hawkish Fed, AI Regulation, and IPO Boom Pressure

Notice that, for the stock market, digesting the risks of the Middle East war seems to be just the first easy step. Next, the market still has to face a series of serious technical and macro challenges: a potential hawkish new Federal Reserve chairman, disruptive interventions by Washington in AI trading, and the largest wave of new stock supply in market history. However, the tail risk of geopolitical tensions has been significantly alleviated. The US and Iran are expected to sign a mid-term peace agreement on June 19, which may allow for the complete reopening of the Strait of Hormuz. The benchmark Brent crude oil price has already regained about 80% of its gains since the outbreak of the war. This is good news, and the market has essentially already digested this positive development. However, the problem is that no one should mistake this agreement for lasting peace: a ceasefire agreement in April this year quickly unraveled, and the traffic in the Strait of Hormuz may only partially resume, with the document not yet formally signed. The risk of war has only diminished and not disappeared - this is exactly why the market's attention is now turning back to the issues the stock market itself needs to address. First, let's look at the stock market's position structure. The basis for the summer market's rise is technical fund flows, not firm fundamental confidence. Brian Garrett, a derivatives expert at Goldman Sachs Trading Desk, said, "Macro shorts covering set the tone for the beginning of summer 2026, crowded one-delta hedges were closed, and the market is still looking for belief and direction." Garrett noted that as market participants look for the next opportunity, there are frequent trades on the trading desk for "market style rotation/recovery". Once popular AI concept stocks suddenly dropped to the bottom of the short-term performance list, while more defensive broad strategies performed better. Under the surface of the market, the momentum of buying stocks continues, but last week's buying structure looks a bit off. Garrett said, "Hedge funds have been buying US stock risk assets for four consecutive weeks, but this week's focus is more on increasing alpha exposure, rather than increasing beta short positions. Global main brokerage accounts present a net buying situation, with a 4.7 to 1 ratio of short covering to long buying." A market that rises because shorts are giving up rather than because of firm long confidence may be in a dangerous situation with fragile ice. In this context, Kevin Wash steps onto the stage and will chair his first Federal Reserve Open Market Committee meeting on June 16 and 17. He has publicly criticized the Fed's past communication style and hinted at a "institutional reform of forward guidance". His first appearance comes amid serious concerns: inflation remains stubborn, energy prices are unknown, and investors are betting that the Fed may have to raise rates before December. Wash must sound convincingly independent, while the White House, which strongly supported his appointment, is carefully studying every word he says. At the same time, valuing AI trading models has become more unpredictable. The US Department of Commerce last Friday ordered Anthropic to prohibit foreign citizens from accessing its latest models - Claude Fable 5 and Mythos 5. For compliance, the company directly shut down these two platforms to everyone. This is the first time the US government has directly restricted AI models themselves rather than restricting the chips used to train them. This move has made "who is leading in the AI field" not just a technical issue, but a political one. Investors must now consider how to reprice this political escalation along with other factors driving AI trading. Looking ahead, the future is equally mysterious. If the bull and bear cycles of the Nasdaq 100 index from 1996 to 2003 were applied to the Philadelphia Semiconductor Index since 2022 (this comparison has become more common recently), the magnitude of the gains shows astonishing similarities. However, the similarity depends on when investors start counting and whether the market believes that chip stocks are destined to repeat the explosive rise and fall of the dot-com bubble era. If a government order can now cut off access to models, the future picture will become even more blurry. Finally, there is the change in the supply-demand relationship of stocks. SpaceX finally priced itself at $135 and began trading on June 12, with a valuation of about $1.77 trillion, becoming the largest IPO in market history, about three times the previous record. So far, this is indeed exciting. However, the amount raised by this single IPO exceeds the total of all IPOs in the United States in 2024 and 2025, while Anthropic and OpenAI are still waiting to follow suit. The real challenge is not in the debut, but in whether the market can continue to digest such a huge new stock supply in the coming months. Equity offerings are expected to grow at the fastest pace since at least 1999. Peter Chill, head of macro strategy at Academy Securities, said, "The details of the market's long-term direction are key, and the subsequent performance of large cap IPOs will be more important to the market." The current market script is roughly this: if the current short covering can successfully transition to true alpha buying, then market rotation and recovery will be supported, and the massive new stock supply will be absorbed by the market. The stock market will be able to rise and fluctuate, making the easing of tensions in Iran look like the first domino falling in the right direction. But if market confidence remains lacking, Wash leans hawkish, and the landscape in the AI field becomes overly politicized, then the wall of this record-breaking new stock supply may face a market that has only solved the "easy problem" of unwinding, but still has no solution to the remaining difficult problems.