U.S. stocks decline ahead of CPI release, storage sector rises
Article by: Tide Research
On Tuesday, all three major U.S. stock indices closed lower: the S&P 500 fell 0.32% to 7,728.20, the Dow Jones dropped 0.34% to 53,791.85, and the Nasdaq declined 0.60% to 26,445.446, while the Russell 2000 rose 0.32% against the trend. Pressure came from two directions: recurring tensions in the Strait of Hormuz weighed on risk appetite, and concerns over AI funding pressured large technology stocks. Alternative asset managers surged across the board, with KKR rising nearly 7%, and the storage sector also advanced despite the broader market decline, providing some support. Ahead of the CPI release, investors voluntarily reduced positions, awaiting inflation data to set the tone for September interest rate expectations.
Market adopts a cautious stance ahead of the CPI release, with U.S. Treasury yields declining and gold retreating.
The market’s sentiment on Tuesday was “waiting for data.” The U.S. July CPI will be released on Wednesday; Goldman Sachs believes inflation may be lower than expected, while HSBC bets on “moderate” data.
U.S. Treasury yields have priced in dovish expectations ahead of time. The 10-year U.S. Treasury yield fell about 2 basis points to 4.69%, while the 2-year yield declined approximately 2 basis points to 4.22%. The U.S. Dollar Index remained largely unchanged.
Gold retreated from a two-month high. Spot gold edged down 0.50%, while spot silver fell 1.6%. Oil prices fluctuated higher, with WTI crude rising approximately 1.3% to $83.20 per barrel and Brent crude up about 1.4% to $88.91 per barrel. Bitcoin surged then reversed, falling as much as 2% from its daily high.
Large-cap tech stocks came under pressure, with Google falling nearly 4% to lead the declines.
The Wind U.S. Tech Seven Giants Index fell 1.13% on Tuesday, with large technology stocks being the main drag on the broader market. Google A dropped nearly 4%, posting its largest single-day decline in nearly six months and leading the Dow lower. Concerns over AI capital expenditures and financing costs continue to intensify.
Jensen Huang clarified details of the $500 billion financing plan on Tuesday, leading to a decline in NVIDIA’s credit risk. Morgan Stanley subsequently confirmed that the investment was led by third parties, with NVIDIA providing only “residual value support.” However, this response did not fully allay market concerns, and NVIDIA still closed lower on Tuesday.
NVIDIA is still developing its next-generation open-source AI model, Nemotron, which is reportedly targeting the trillion-parameter scale. As AI model sizes continue to grow, demand for computing power remains strong, but the market is reassessing the costs of financing and the payback periods.
Alternative asset management firms surged across the board, with KKR rising nearly 7%.
The alternative asset management sector surged across the board on Tuesday. KKR rose 6.92%, Apollo increased 6.23%, and Blackstone gained 3.89%. The BDC sector (Business Development Companies) also advanced across the board.
Amid pressure on technology stocks, capital is shifting toward sectors that benefit from declining interest rates and capital intermediation activities. Alternative asset management, as a key player in capital intermediation, directly benefits from two factors: strong demand for financing AI infrastructure and easing expectations around interest rates.
Storage sector rises against the trend, target prices for Samsung and SK Hynix are lowered.
Besides alternative asset management, the storage sector was another pillar supporting the market today. The Philadelphia Semiconductor Index rose 0.87%, with individual stocks such as SanDisk and Western Digital posting varying degrees of gains.
On the news front, conflicting signals have emerged. SK Hynix is reportedly restarting construction of its No. 2 NAND flash memory production facility in Dalian, China, with a capacity increase of approximately 50%. The company plans to install equipment by the end of this year and begin formal production in the first half of next year. Such large-scale expansion typically reflects confidence in future demand prospects.
However, South Korean brokerage firms are simultaneously lowering their target prices. Kiwoom Securities reduced Samsung Electronics’ target price from ₩390,000 to ₩350,000 and SK Hynix’s target price from ₩2.2 million to ₩2.1 million, with cuts of up to over 30%. The downward revisions reflect growing concerns that the general-purpose memory chip industry has passed its peak.
Simultaneous capacity expansion and target price cuts indicate diverging market views on the memory sector: demand for AI-related HBM remains strong, but the cyclical upswing for general-purpose memory chips may have peaked. On Tuesday, capital flowed into the narrative of sustained AI-driven memory demand.
Chinese stocks under pressure, Golden Dragon Index falls nearly 3%
The Nasdaq China Golden Dragon Index fell 2.94% on Tuesday, with Tencent Music dropping nearly 12% and Bilibili sliding over 5%. Chinese equities ended their streak of outperforming the broader market, facing profit-taking ahead of the CPI data release. Global investors remain cautious toward Chinese stocks amid macroeconomic uncertainty, with geopolitical risks and uncertainty around the pace of consumer recovery serving as key dampening factors. The pullback in Chinese equities has released some profit-taking pressure ahead of the data release, but the core macro variable remains Wednesday’s CPI.
Focus on Wednesday: CPI data sets the tone for September interest rate path
The market’s focus on Wednesday is solely on the U.S. July CPI data. If CPI comes in below expectations, U.S. Treasury yields may decline further, easing valuation pressures on tech stocks and reinforcing the rally rationale for alternative asset management and storage sectors. If CPI exceeds expectations, the optimism triggered by last week’s non-farm payrolls data could be completely reversed, causing U.S. Treasury yields to rise again and putting renewed pressure on tech stocks.
The S&P 500 is near record highs, and Tuesday’s volatile close suggests positions were reduced ahead of the data release. The direction of Wednesday’s CPI will determine whether the market continues its upward breakout or enters a correction.
