Before Fed Powell's debut, the market removed its hedge: the AI computing power industry chain became the only consensus in the second half of 2026.

The latest signs of the United States and Iran approaching the end of a new round of Middle East wars have led stock market traders to sell off their hedging positions this week, unanimously shifting their focus to the bullish side. This is happening just before the new Federal Reserve Chairperson Powell reveals part of his monetary policy stance on Wednesday (Thursday morning Beijing time). Statistics compiled by institutional options markets show that the cost of insurance for a 10% drop in the S&P 500 index in the next month plummeted on Monday to the lowest level in over a year, compared to profits from similar magnitude increases. Meanwhile, recent research reports from Wall Street financial giants such as Goldman Sachs, Morgan Stanley, and JPMorgan Chase all indicate that the global stock market bull run dominated by the AI computing power industry chain is far from over. In other words, as the risks of war with Iran subside, traders are unanimously repositioning themselves towards the popular trading themes from before the war, which included short-term U.S. bonds, Asian currencies, and the AI computing power industry chain. The AI computing power industry chain led by companies like Nvidia, AMD, ARM, SK Hynix, and Micron can be considered the strongest investment theme in the pre-war trading scenario. Stocks directly related to the AI computing power infrastructure - namely Nvidia, SK Hynix, and the AMD-led "AI computing power super group" - are often the most sensitive, active, and lucrative layers in the overall market and tech stock rebound logic; the core logic behind their rebound is extremely "hardcore": it is directly tied to the record-breaking trillion-dollar AI capital spending by tech giants, rather than just storytelling. David Kelly, Chief Global Strategist at the asset management division of Wall Street banking giant JPMorgan Chase, is leading a team that is urging investors to continue holding stocks and other relatively high-risk assets in the second half of 2026. They believe that the unprecedented AI investment boom and resilient consumer spending should continue to support economic and stock market prosperity even amidst persistent inflation and the Federal Reserve maintaining a stance of monetary policy watchfulness. In the eyes of Goldman Sachs, the global bull market centered around the AI computing power chain is far from over, and the main theme in the market has shifted from the long-term "code-driven software light asset software valuation expansion" that has been in place since 2008 to a "repricing of AI computing power infrastructure around a series of physical assets." Goldman's latest assessment suggests that the next round of excess alpha returns will not only be exclusive to the AI GPU/AI ASIC domain's top leaders but will systematically spread to data center high-performance CPUs, DRAM/NAND/HBM storage, AI PCBs, liquid cooling systems, data center optical interconnection systems, ABF substrate/glass substrate, MLCC, electronic fabrics, and widespread wafer foundries in the "AI factory" full-stack AI computing power infrastructure layer. Nvidia CEO Huang Renxun even mentioned on Wednesdya that the AI infrastructure could revitalize American factories and possibly usher in a new era of growth for American manufacturing and industry. However, some traders are still feeling very anxious as Powell presides over his first Federal Reserve FOMC monetary policy meeting as head of the Federal Reserve, as they believe that some cautious investors have not actually shown their cautious stance in their options positions ahead of the meeting. This rare complacent attitude may make the market more vulnerable to short-term declines. These cautious traders believe that as the market unanimously shifts towards a bullish stance, this trend actually makes the stock market more susceptible to any negative unexpected shocks, as investors are betting that the market will not experience much turbulence while awaiting Powell's first press conference after the Federal Reserve monetary policy decision. The press conference is scheduled for 2:30 pm Washington time. If this bullish judgment is wrong, the return of VIX volatility could end the increasingly bullish sentiment in the market under the ceasefire between the US and Iran. On the other hand, as the retreat of hedging subsides, the S&P 500 index stands at the crossroads of "AI prosperity and inflation hawkishness." John Salama, a proprietary equity derivatives trader at Maverick Trading, said, "Fear has been taken out of the market. This may signal a significant complacent mood, exposing traders to significant bearish risks, and may be the beginning of a low volatility market in the coming weeks." Investors and Wall Street strategists generally believe that the Federal Reserve will maintain unchanged interest rates at the end of the two-day FOMC monetary policy meeting on Wednesday Eastern time. It is expected that the peace agreement framework officially signed in Switzerland between the US and Iran will mitigate concerns about soaring oil prices and their impact on inflation, pushing the S&P 500 index back to within 1.3% of its all-time high. However, this situation is not without risks for Wall Street strategists, as Powell faces a daunting task balancing President Donald Trump's demand for rate cuts to stimulate growth, and the data showing the fastest inflation rate in three years in May. Traders are speculating on the Federal Reserve's next move, with some expecting rate hikes rather than cuts. This makes the Federal Reserve's new economic forecasts for the US economy a focal point, with any changes to the quarterly "dot plot" forecasts by policymakers being closely watched. The dot plot shows policymakers' rate forecasts, but Powell has advocated reducing the frequency of dot plot disclosures and has even suggested abolishing it altogether. Investors are speculating that if the Federal Reserve, under Powell's leadership, becomes more opaque in its transparency and communication with the market, there could be significant risks of a valuation collapse. However, any signs of persistent inflation or progress towards anti-inflation could trigger adjustments in the AI super bull market after the Federal Reserve meeting and even potentially cause sharp fluctuations in global stock markets. If the dot plot shows that policymakers are overall more hawkish, it could trigger some selling. For example, investment management company PGIM is betting that the Federal Reserve will raise interest rates three times this year to put the brakes on the economy, followed by a reversal in 2027. After months of subdued economic data releases, price volatility around these events has increased again. Data compiled by Asym Research strategist and founder Rocky Fishman show that the S&P 500 index's average realized volatility was 19 over the past three months on days when the Consumer Price Index report, government monthly employment data, and Federal Reserve rate decisions were released, compared to a reading of 15 on other trading days. For the S&P 500 index, which has seen its market capitalization increase by over $10 trillion since late March, this could be a dangerous new pattern. "If Powell says anything unexpected about China-US trade, tariffs, or inflation, it will scare the market," said Salama. AI investment prosperity reignites the stock market bull market - JPMorgan Chase bets big on the continued rise of the AI computing power investment frenzy and the expansion of the wealth effect JPMorgan Chase's global asset management division is urging investors to continue holding stocks and other higher-risk assets in the second half of 2026, believing that the AI investment boom and resilient consumer spending should support economic and stock market bull market expansion even amidst persistent inflation and the Federal Reserve maintaining a stance of monetary policy watchfulness. This view challenges the growing concerns that this year's strong gains have made stocks vulnerable to a pullback. Instead, the Wall Street super institution, which manages $4.3 trillion in assets, believes that with companies increasing their AI computing power infrastructure spending, economic momentum is strengthening. At the same time, high-income consumers continue to spend thanks to the so-called capital market wealth effect, boosted by rising stock prices and housing prices. JPMorgan Chase's asset management department also stated in its mid-year outlook for 2026 that as yields remain high, bonds have become attractive again, and as the link between emerging markets and the Asian chip supply chain deepens, it is worth being overweight on emerging markets. To diversify asset allocation, the company recommends not only increasing positions in leaders in the AI computing power industry chain but also allocating to defensive alternative assets like real estate, infrastructure, and transportation, as well as focusing on Europe and Japan. "In terms of our base case forecast, the good news is that we expect the economy to strengthen in the middle of the year," said David Kelly, Chief Global Strategist at JPMorgan Chase's asset management division. He added that this strong trend is partly aided by income tax refunds and AI spending. Kelly stated that whether the economy can continue to grow into the fourth quarter depends on whether Washington provides additional fiscal stimulus, but the team's base forecast is that the Democrats will regain control of the House of Representatives, limiting the prospects for fiscal stimulus in 2027. "For Americans, this is a resilient economic growth trajectory; for global stock markets, this is a fantastic economy," he said. "The only things that truly matter for stocks are profits and rates. And profit growth has been outstanding." Despite persistent high inflation, the economic backdrop is stronger. In May, consumer prices rose by 4.2% year-on-year, the fastest pace in three years. However, Kelly expects that with a lasting solution to the tensions in the Strait of Hormuz, inflationary pressures will gradually ease in the remaining months of 2026 and into next year. Decreasing energy costs, slowing housing inflation, and controlled wage growth are expected to help cool price increases. "We're not predicting a recession," he said. "The wealth effect and AI boom are propelling us forward." In terms of interest rate outlook, the JPMorgan Chase team believes that the Federal Reserve will not raise interest rates at any time in the next two years. Kelly also suggested the possibility of the central bank cutting rates next year. Kelly stated that the investment environment in 2026 is defined by the tension between rising political and economic risks and the sustained support from the AI-driven computing power infrastructure spending frenzy. "This really encapsulates the economic and financial market status we find ourselves in mid-2026," Kelly said. He added, "There are many cross-currents," citing highly inflated market price-to-earnings ratios, economic nationalism, political polarization, ongoing conflicts in the Middle East, and risks related to immigration and tariffs. However, "in all of this, we have this huge unprecedented AI infrastructure dividend, both in terms of the potential of this technology and more specifically, from the massive capital spending by the mega-scale cloud providers." Kelly stated that international stock market earnings growth is being driven more by the long-term growth trends around AI infrastructure and AI applications rather than by business cycles, though he warned against over-leveraged positions in Asian tech stocks. He noted that markets like Korea and Taiwan have exposure to "hard tech around chips" that is increasingly close to double that of the US. He expected both markets to be among the top performers. "In terms of the gains we've seen, we're in the fourth year of a very strong stock market bull market. And there is growing concentrated risk," he said. A $7.6 trillion AI infrastructure boom is approaching! From code dividends to the AI infrastructure super cycle, the AI bull market is far from over Recent research reports released by Goldman Sachs show that AI CapEx (capital expenditures around AI) are no longer concentrated on large-scale purchases of Nvidia's Blackwell/Rubin AI GPU computing clusters, but now cover a comprehensive set of systems including data center power equipment, liquid cooling, data center CPUs, DRAM/NAND/HBM, optical communication/optical interconnection, high-performance Ethernet network infrastructure/data center DCI high-speed interconnection, transformers, gas turbines, and more in the full AI factory chain. Nvidia CEO Huang Renxun recently said at the annual shareholder meeting that AI could usher in a new era of growth for American manufacturing and industry. Goldman Sachs' benchmark framework estimates that investments in the AI infrastructure will reach approximately $770 billion in 2026 for major cloud computing companies, nearly equaling their entire operating cash flow. The firm predicts cumulative capital expenditures on AI infrastructure from 2026 to 2031 to reach around $7.6 trillion, with at least $765 billion in annual AI CapEx expected in 2026, rising to around $1.6 trillion by 2031. Analysts at Goldman believe that the pricing logic of the AI wave is transitioning from "who can develop the strongest AI models/AI application software" to "who can quickly build an AI computing power cluster, achieve large-scale power supply and cooling, accelerate interconnectivity within data centers and between data centers through optical connections, and continue to iterate on the next generation of AI factories." Goldman Sachs' global investment research department points out that AI infrastructure companies with a large number of physical assets have begun to outperform those lightweight asset software companies. This is due to a fundamental shift: today, advancements in artificial intelligence technology not only require clever coding and programming engineering, but also require robust infrastructure. Building the backbone network for machine learning systems involves investing in data centers, power grids, cooling systems, raw materials, and heavy machinery. This contrasts with the investment landscape in financial markets that emerged after the 2008 financial crisis. Over the past decade, low capital expenditures in lightweight software-oriented companies were able to command premium valuations. Low interest rates and lackluster economic growth made software companies and digital mega-platforms the preferred investment choice for growth-seeking investors. Meanwhile, traditional industrial sectors struggled due to being ignored for so long, oversupply issues, and consistently disappointing returns. The current economic situation has changed this pattern. Strong nominal output growth, sustained price pressures, and continued large-scale capital spending on AI projects are bringing new sources of revenue to industries that have long been neglected. Statistics from Goldman Sachs show a significant reversal in favor of asset-intensive stocks over lightweight asset software stocks, after years of lagging performance. According to analysts at Bank of America, the AI computing power infrastructure is entering a more durable and extensive capital spending cycle. At nearly the same time, a research report from Morgan Stanley suggests that the AI arms race is entering a stage of systemic expansion, with AI infrastructure demand showing a rare "inelastic" trend meaning that regardless of cost curves, tech giants continue to ramp up AI data center construction. This "inelastic demand" trend will continue to strengthen the resilience of the US economy and overall profit growth of the S&P 500 index. It is predicted that by 2028, close to $3 trillion of AI-related infrastructure investment will flow through the global economy, and over 80% of the expenditure remains on the horizon. Wei Zhejia, head of TSMC, recently stated at the annual shareholders' meeting that demand will exceed supply in the coming years, and even with additional US production capacity coming online, TSMC will still struggle to fully meet AI-driven demand in the next few years. In terms of specific AI capital expenditure outlook, Wei Zhejia's statements at the shareholder meeting, saying "I don't know where the peak is" and "I haven't seen any signs of demand stopping," can be considered the most bullish statement from an industry giant on the AI computing power industry chain. (header note: The translation may not be perfect, but it strives to convey the main points and essence of the original text.)