Dual Pressures of Geopolitical Risk and AI Valuation: Strategy Analysis Amid Market Volatility

The overall market trend this week was largely in line with previous expectations. The index closed lower for the week, but the decline was limited, with the low approaching the 6800 zone, and no trend-breaking pattern has formed yet. This indicates that the market is not in a state of panic-driven collapse, but rather in a phase of high-level volatility and risk repricing.

The decline originated from widening divergence in expectations for the AI sector. The market began to question the profit realization capability of high-valuation tech stocks, leading to a decline in risk appetite, with the semiconductor sector leading the pullback. Although NVIDIA's earnings expectations remain strong, funds took profits early, dragging down the entire chip sector. The downward pressure from tech heavyweights on the index represents the first-stage logic of this adjustment—valuation digestion.

Just as the market entered a technical consolidation phase, a sudden geopolitical event altered the short-term pricing model. The US and Israel conducted targeted strikes against Iran, dealing a heavy blow to Iran's leadership. This event instantly shifted the market from 'fundamentals-driven' to 'risk premium-driven'.

Due to the closure of traditional markets over the weekend, Bitcoin became the only continuously traded asset. Its price action showed an initial drop on war news, followed by a rebound above Friday's close. This structure typically means the market is characterizing the event as a limited military action, not a full-scale war. If the market judged it as a prolonged, full-scale conflict, risk assets would not recover so quickly.

The nature of this military action differs from traditional warfare. Past Middle Eastern wars often involved ground occupation and sustained aerial bombardment, while this one is closer to a combination of 'targeted elimination + intelligence warfare + electronic warfare'. Its core features are high efficiency, low sustained cost, and clear objectives, rather than long-term occupation. Therefore, the US strategy appears more focused on creating localized shock and deterrence than expanding into a full-scale war.

Historical comparisons provide important reference:

Oil crisis-type conflict → Long-term bear market

Gulf War → Bottomed and rebounded upon outbreak

2003 Iraq War → Bottoming before the war

2020 Targeted elimination operation → Three-day recovery

Israel-Hamas conflict → Rebound within two weeks

The key variable remains only one: whether the conflict escalates into a regime-change war.

If the goal is merely decapitation and negotiation pressure, the war cycle could be controlled within a month, risk premiums would fade quickly, and the market might even form a 'bad news is exhausted' scenario.

If the goal shifts to regime overthrow, the timeline extends, the market volatility cycle lengthens, and growth stock valuations would continue to compress.

Judging from the asset reaction structure, capital has already given preliminary signals:

Energy has become the most direct beneficiary sector, with the core variable being whether the Strait of Hormuz is blocked. If blocked, the risk of crude oil supply disruption would push oil prices higher; if the situation is controlled and shipping is not interrupted, oil prices may surge and then retreat. Brent crude oil is the most critical indicator to watch.

The defense sector has an event-driven logic, but most stocks are already at high levels, with further upside more dependent on the conflict's duration.

Precious metals are safe-haven assets. Against the backdrop of geopolitical risks and monetary easing expectations, gold's long-term uptrend remains intact, but chasing highs in the short term is not advisable.

The cybersecurity sector has structural logic support. This war model emphasizes electronic and data warfare, strengthening the strategic significance of cybersecurity demand. The previous decline in the software sector has created room for valuation repair; if the conflict persists, this sector may see capital inflows.

The relatively pressured sectors are aviation and tourism, due to rising fuel costs and risks to Middle East routes. However, if negotiation signals emerge, these sectors could become the rebound leaders during risk recovery.

Returning to the index itself, the current technical structure shows consolidation within the 6800–6950 range, with a triangle pattern extension. A short-term rebound is possible driven by sentiment, but the medium term still needs to return to fundamentals—including economic data, monetary policy expectations, and the extent of tech stock valuation digestion.

If it breaks below 6800, the next phase may test lower support zones. The time window for a directional choice is roughly within the next one to two months.

Therefore, the core of the current market is not 'up or down', but the phase of pricing uncertainty. The logical sequence should be:

Geopolitical shock → Rising risk premium → Capital shift to energy and safe havens → Tech stock valuation rebalancing → Ultimate return to economic fundamentals.

If the war converges quickly, the market will see a structural rebound;

If the conflict prolongs and shifts to a regime-change logic, the volatility cycle will be significantly extended.

During this phase, asset strategy should lean defensive:

Maintain a high cash ratio

Increase allocation to short-term US Treasuries or low-risk assets

Medium-to-long term allocation to precious metals

Participate in energy and defense on an event-driven basis

Wait for the tech sector to complete its valuation rebalancing

Overall, this is not a trend collapse, but a process of structural repricing. What truly determines the direction is not Monday's market open, but the duration and nature of the war's objectives.