U.S.-Iran deal prospects dim, tech giants slide, chip stocks rise

AI-generated summary: Financial markets experienced significant volatility on August 18. With the window for U.S.-Iran negotiations expiring without an extension agreement, geopolitical risks intensified, pushing Brent crude oil above $90 per barrel for the first time in three weeks, while the 30-year U.S. Treasury yield hit a new high since 2007. Rising Treasury yields weighed on all seven tech giants, which closed lower, but strong demand fundamentals for AI chips supported the semiconductor sector’s outperformance, with the Philadelphia Semiconductor Index rebounding 1.6%. Memory chip stocks led the gains, with SanDisk rising nearly 9% and Micron up 17.5% over five days. Market participants viewed the strong financial results from Anthropic and OpenAI as key catalysts for semiconductor stocks. The U.S. dollar fell for a third consecutive day, while the offshore renminbi reached a three-year high, and gold closed at its highest level in over two months. Baidu’s earnings report for the day will test the impact of its large AI models on cloud business growth.

Author and source: Chaoxiang Research

The window for U.S.-Iran negotiations has closed, with prospects for a long-term agreement dimming; U.S. stock indices fell for the second consecutive day, with the Dow Jones hitting its lowest level in two weeks. The S&P 500 declined 0.52% to 7,745.06, the Dow Jones dropped 0.51% to 53,459.78, and the Nasdaq slipped 0.32% to 26,644.911. The VIX stood at 17.42, rising 6.48%. All seven major tech stocks closed lower, with Meta leading the decline at 3.5%. However, memory chip and optical communications stocks rose against the trend, as the Philadelphia Semiconductor Index rebounded 1.6% and re-entered bull market territory. Geopolitical risks in the Middle East pushed U.S. Treasury yields higher, with the 30-year yield reaching its highest level since 2007. Prospects of a U.S.-Iran deal supported crude oil prices, with Brent crude rising above $90 per barrel for the first time in three weeks. Gold closed at its highest level in over two months. The U.S. dollar index fell for a third straight day, while the offshore renminbi surged past 6.74 during trading, hitting its highest level in over three years. The market theme remains clear: rising geopolitical risks have boosted oil and safe-haven assets, while demand fundamentals for AI chips continue to strengthen, driving continued capital inflows into memory and optical communications sectors.

The most critical macro variable on Monday was geopolitics. The window for the memorandum of understanding between the U.S. and Iran expired without an extension agreement being reached. Trump stated he is not in a hurry to end the war with Iran, does not seek to extend the U.S.-Iran memorandum of understanding, and claimed that Iran “will not reach an agreement of the kind I consider necessary,” warning that if Oman obstructs negotiations, it will face “heavy bombing.” Iran has taken an equally hardline stance, ruling out any extension of the memorandum and setting a final deadline for the U.S. to fulfill its commitments.

There was no sign of narrowing differences between the two sides' positions, prompting a sharp rise in oil prices. WTI September crude futures rose 2.55% to close at $84.50 per barrel, hitting a monthly high; Brent October crude futures climbed 2.65% to close at $90.87 per barrel, marking the first close above the $90 mark in three weeks.

Oil-producing countries in the Middle East continue to conduct "dark voyages," secretly transporting crude oil through the Strait of Hormuz by turning off transponders, with reported daily volumes exceeding 4 million barrels. However, this covert supply chain has not fully offset the geopolitical risk premium. Short-term upward pressure on oil prices still stems from political factors rather than supply and demand fundamentals.

U.S. Treasury yields continue to rise. The 30-year U.S. Treasury yield briefly surpassed 5.31%, reaching a new high since 2007. The 10-year U.S. Treasury yield is around 4.72%, up approximately 3 basis points on the day; the 2-year U.S. Treasury yield is around 4.18%, up approximately 1 basis point on the day.

The primary factor driving long-term yields higher is supply pressure. Corporations have issued massive amounts of debt to fund the AI boom, with U.S. investment-grade bond issuance reaching $145.2 billion in August, surpassing the previous monthly record of $136 billion set in August 2020. At the same time, the U.S. government’s annual fiscal deficit of nearly $2 trillion continues to increase the supply of Treasury securities.

Major overseas holders are also reducing their holdings. According to U.S. Treasury data, in June, China and Japan led the overseas sell-off of U.S. Treasuries, with China, Japan, and the UK all cutting their positions. China’s holdings declined by $25.9 billion month-over-month to $633.4 billion following a rebound in May, reaching the lowest level since 2008.

In his latest research report, Bank of America's Hartnett stated that U.S. Treasuries are nearing the $40 trillion mark, while the AI financing boom has driven corporate bond issuance up 61% year-over-year, structurally crowding out Treasury buyers, with debt interest payments now reaching $1.4 trillion. Hartnett believes that going long gold is the optimal hedge against dollar depreciation, bond market collapse, and political risk.

Rising U.S. Treasury yields pressured the Magnificent Seven, but the semiconductor sector, driven by independent demand for AI chips, strengthened against the trend. The Philadelphia Semiconductor Index rebounded 1.6%, with this bear market lasting only 21 days—the shortest since March 2020.

Memory chip stocks performed the strongest. SanDisk rose nearly 9%, Western Digital gained over 5%, and Micron surged 17.5% over five days. The market believes that the recent strong financial results disclosed by Anthropic and OpenAI are the most important catalyst for today’s chip stocks, as visibility into AI chip demand has improved.

Optical communication stocks rose in tandem. Coherent climbed nearly 8%, while Lumentum gained 4.6%. Demand for high-speed optical interconnects in AI data centers continues to be validated, with capital flowing further into the more certain AI hardware segment amid macroeconomic uncertainty.

SpaceX rebounded more than 4%. After facing sustained pressure due to concerns over capital expenditures, Monday's rebound indicates that the market still has confidence in the long-term rationale for investing in AI infrastructure.

The "Big Seven" tech stocks all closed lower on Monday, leading the market decline. Meta fell 3.5%, leading the losses, while the other six posted relatively milder declines.

The collective weakness of the Seven Giants stems from the sustained rise in U.S. Treasury yields. Higher long-term interest rates exert pressure on the discount rates used to value high-valuation growth stocks, prompting capital to temporarily withdraw from large-cap tech stocks amid macroeconomic uncertainty.

However, the withdrawal of funds does not represent a systemic exit; the strength of the chip index indicates that capital is merely shifting within the technology sector, moving from the Big Seven to AI hardware segments with higher certainty.

The U.S. Dollar Index fell for a third consecutive day, hitting its lowest level in over two months. The offshore renminbi rose intraday above 6.74, reaching its highest level in more than three years. Gold closed at a more than two-month high, rising over 1% during the session; the COMEX August gold futures contract settled up 0.85% at $4,417.8 per ounce. While rising U.S. Treasury yields typically weigh on gold, heightened geopolitical risks drove safe-haven demand that outweighed the impact of interest rates.

Bitcoin rose above $64,000 intraday, up 3% from its daily low. Digital assets gained support amid a weaker U.S. dollar. COMEX August silver futures closed up 1.74% at $66.121 per ounce.

The market's focus on Tuesday was in two directions.

First, the subsequent developments in the U.S.-Iran situation. Whether the two sides will engage in new contacts or see escalated tensions after the memorandum of understanding expires will directly impact oil prices and risk assets. Trump’s statement that he is “not in a hurry to end the Iran war” suggests that the geopolitical risk premium is unlikely to dissipate in the short term.

Second, Baidu’s earnings report and earnings call. The impact of AI large models on cloud business and the recovery pace of advertising business are the key highlights. Against the backdrop of the Jinlong Index consistently underperforming, Baidu’s earnings report will test whether global capital’s sentiment toward Chinese-listed stocks has shown any marginal shift.