Where the correction stands

With leveraged capital retreating in large volumes and valuations resetting, the market structure has undergone a profound shift. For investors, the current situation presents both an opportunity for positioning after a technical correction and a complex trap hidden in the deteriorating macroeconomic environment.

Strategists at JPMorgan Chase, led by Nikolaos Panigirtzoglou, point out that the deleveraging pace in the tech sector, including memory chips, has far exceeded earlier expectations. Data shows that hedge funds have largely completed their reduction in semiconductor holdings. Currently, not only are short positions in semiconductor ETFs like SMH and DRAM elevated, but momentum signals for major tech-weighted indices such as the Nasdaq, Nikkei, and Taiwan stocks have also significantly deteriorated. This indicates that previously crowded momentum traders, such as Commodity Trading Advisors, have largely closed positions and exited.

Valuation and risk assessment

JPMorgan Chase believes that, based on current position distribution, the potential for further selling in the market has become relatively limited. As prices decline, the "value proposition" of US stocks is beginning to emerge. RBC Capital Markets strategist Lori Calvasina notes that valuations for the Nasdaq 100 and even the S&P 500 are re-entering a "reasonable range." A key observation point is the premium of US stocks relative to other global markets. Currently, the valuation premium of US stocks over global equities has narrowed to around 22%, well below the 10-year average of 31% and hitting a six-year low. This return of valuation advantage opens up room for long-term capital to enter.

However, Calvasina also reminds investors that the Federal Reserve's policy transition period is often accompanied by significant market volatility. Drawing from historical experience, the performance of the S&P 500 during policy-sensitive periods tends to be non-linear, meaning the recovery path will not be smooth.

Macro risks and shifting strategies

While position clearing and earnings performance provide support, the deterioration of the macroeconomic environment remains a risk. Driven by persistently high oil prices, concerns about a second wave of inflation are heating up. The 10-year US Treasury yield has steadily climbed to near 4.7%. Goldman Sachs derivatives expert Lee Coppersmith warns that as the excitement of the earnings season fades, the market's focus is being forcibly drawn back to the path of interest rates and inflation. With real yields at cyclical highs and US bond volatility increasing, it is difficult for stock market volatility to remain low.

Strategists at Societe Generale SA hold a more aggressive view on this matter. The team led by Alain Bokobza believes that, considering tariff policy risks, the AI-driven capital expenditure cycle, and persistent fiscal deficits, the future inflation backdrop will be more complex than what current market pricing reflects. In this environment, institutional investment advice is shifting from "all-in long" to "structured allocation." Societe Generale SA is more favorable towards the S&P 500 Equal Weight Index, arguing it better reflects the current state of the real economy.

In the European market, bank stocks benefiting from a high-interest-rate environment and strategic materials sectors, such as basic resources, which benefit from grid upgrades, renewable energy, and AI infrastructure, are preferred. Corporate earnings for the second quarter showed strong resilience. The profit growth rate for S&P 500 components reached 28.7% year-on-year, far exceeding the expected 23.2%. In particular, tech giants like Microsoft and Amazon have begun to see their AI capital expenditures reflected in results, partially offsetting the negative impact of rising interest rates.