--- title: "Has the Worst of the AI Bull Market Passed? Wall Street: The Real Test Is Just Beginning" type: "News" locale: "en" url: "https://longbridge.com/en/news/294653465.md" description: "U.S. stocks experienced a brutal July, with technology stocks leading the decline (NASDAQ down 3.2%). Although a rebound occurred at the end of the month, Goldman Sachs believes it was primarily driven by short covering, making the foundation unstable. Current concerns about resurging inflation and high interest rates suppressing tech valuations, combined with significant deleveraging in leveraged ETFs, have intensified structural market volatility. Future trends still require further validation from non-farm payroll data and interest rate directions" datetime: "2026-08-03T07:10:34.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/294653465.md) - [en](https://longbridge.com/en/news/294653465.md) - [zh-HK](https://longbridge.com/zh-HK/news/294653465.md) --- # Has the Worst of the AI Bull Market Passed? Wall Street: The Real Test Is Just Beginning Wall Street has just endured its most brutal market conditions in months. Technology stocks led the decline, bond yields surged, and oil prices fluctuated violently—multiple pressures converged, plunging investors into deep anxiety: Has the worst moment for the market passed? In July, the NASDAQ Composite Index fell cumulatively by 3.2%, marking its worst monthly performance since March this year; the S&P 500 Index dipped slightly by 0.1%, while only the Dow Jones Industrial Average recorded a slight monthly gain of 0.3%. Meanwhile, although the technical rebound in the last two days of the month provided brief respite, Brian Garrett, a top derivatives trader at Goldman Sachs, warned that **last week's buying was more of a "gross down" due to short covering rather than genuine long position building**—this key distinction implies that the market's stabilization foundation remains fragile. The return of inflation, uncertain interest rate prospects, and doubts about the sustainability of AI capital expenditures constitute a triple shackle suppressing technology stocks. Garrett explicitly pointed out that this week's non-farm payroll data and interest rate trends will serve as a key litmus test to determine whether the previous rebound signifies a genuine return of demand or merely a position cleansing. ## Inflation Returns to the Core Market Narrative Callie Cox, Chief Market Strategist at Ritholtz Wealth Management, believes that **investors must prepare for more market volatility—inflation has once again become the dominant force driving the broader market.** "I am not saying that a decline is inevitable, but the current environment is complex enough. We face too many indicators at high levels. Once the market turns upward, the path to recovery may not be smooth," Cox told MarketWatch. "Currently, inflation is the biggest risk facing equity portfolios, while economic growth lacks resilience before the end of the year." Recent data shows that inflation showed signs of cooling at least in June, with the latest Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) data both declining. However, the renewed rise in oil prices in July puts this progress at risk of reversal. Cox pointed out that the drivers of current inflation are fundamentally different from the price crisis in 2022 caused by supply chain disruptions and large-scale fiscal stimulus. Nevertheless, after nearly four years of strong gains in the bull market, interest rate uncertainty and inflationary pressures have risen to a level sufficient to "continuously disturb" stock prices. ## AI Demand and Cost Pressures Transmit to Technology Stocks Inflation risks stem not only from energy prices but also from the AI investment boom itself, which is creating new cost pressures. Brian Kersmanc, Portfolio Manager at GQG Partners, noted that prices for key inputs such as memory chips, heavily consumed by data centers and AI infrastructure, continue to rise. Companies may ultimately pass these costs on to customers, thereby further pushing up inflation. "Inflation is largely driven by sentiment," Kersmanc said: > "If people believe inflation is coming, they will consume and act according to that expectation. Therefore, the longer inflation persists, the easier it is for it to become self-reinforcing." This logic is particularly dangerous for interest-rate-sensitive sectors with extremely high valuations—especially chip stocks. The expected revenue and profits of such companies largely come from the distant future. When the discount rate rises due to high interest rates, the present value of these future cash flows shrinks significantly. However, Kersmanc also pointed out a counter-positive effect: **High interest rates not only compress valuations but also suppress companies' willingness and ability to make capital expenditures.** "From this perspective, inflation might actually be more favorable for hyperscale cloud providers, because what the market currently worries about most is precisely their overly aggressive capital spending," he said. Data from Goldman Sachs corroborates this divergence logic: Last week's earnings season for large-cap technology stocks showed extremely disparate market reactions—Apple's market cap evaporated by approximately $50 billion in a single day, and Meta fell nearly 8%; whereas Amazon and Microsoft both surged over 15%, with Microsoft setting a record for the highest single-day market cap increase in history (approximately $550 billion). ## Undercurrents Beneath the Surface Calm of the Broader Market The overall sluggish performance of the market in July masked profound structural rotations within. According to FactSet data, the S&P 500 Equal Weight Index, which excludes the impact of market capitalization weighting, actually rose by 1.3% in July, while the market-cap-weighted S&P 500 Index fell by 0.1% during the same period. Among the 11 sectors of the S&P 500, seven recorded positive returns in July, with only the Information Technology, Industrials, Materials, and Utilities sectors closing lower. Jay Hatfield, CEO and Chief Investment Officer at Infrastructure Capital Advisors, attributed this phenomenon to the lingering shadow of geopolitical tensions: "Under the overwhelming pressure of war, the market can only rotate." He also warned that the deleveraging process by hedge funds may not be fully complete, and the resulting selling pressure will continue to create volatility. Goldman Sachs data provides further evidence: Last week, selling by technology stock bulls reached the largest three-day volume on record for Goldman Sachs on Tuesday, followed by signs of rebuilding positions on Friday—the shift from historic selling to initial recovery within the same week sufficiently illustrates the extreme difficulty of the current market conditions. ## Doubts About the Authenticity of the Rebound, Key Thresholds Await Breakthrough Even though the market showed a clear rebound last weekend, Brian Garrett of Goldman Sachs explicitly advised caution. **He pointed out that last week's net buying volume was the largest since November 2020, but the drive came mainly from short covering rather than active long position adding—the ratio between the two in the derivatives market was approximately 2:1.** This means that this round of rebound looks more like a technical repair after position clearing rather than a trend-driven market rally fueled by new buying. At the market structure level, the S&P 500 Index had previously closed below its 50-day moving average for six consecutive trading days; trend signals for CTA strategies in the U.S. market remain slightly negative, with key support levels at 7,445 and 7,215 points respectively. Meanwhile, the asset size of global leveraged ETFs has plummeted by approximately $60 billion (a drop of about 28%) since June, with actual net exposure shrinking even more significantly by approximately $170 billion—this massive forced deleveraging pressure remains a potential hidden danger in the market structure. Garrett currently tends to position himself under the assumption that the systemic deleveraging cycle is nearing its end: by going long on volatility decline and buying three-month call options on the S&P 500, he is betting on a scenario of a "slow climb." However, he simultaneously emphasized that this week's non-farm payroll data, along with whether interest rates and corporate earnings can "validate" last Friday's rebound, will be the true test of whether this judgment holds. ### Related Stocks - [.IXIC.US](https://longbridge.com/en/quote/.IXIC.US.md) - [ONEQ.US](https://longbridge.com/en/quote/ONEQ.US.md) - [QQQ.US](https://longbridge.com/en/quote/QQQ.US.md) - [QQQM.US](https://longbridge.com/en/quote/QQQM.US.md) - [QQEW.US](https://longbridge.com/en/quote/QQEW.US.md) - [QQQE.US](https://longbridge.com/en/quote/QQQE.US.md) - [TQQQ.US](https://longbridge.com/en/quote/TQQQ.US.md) - [QLD.US](https://longbridge.com/en/quote/QLD.US.md) - [PSQ.US](https://longbridge.com/en/quote/PSQ.US.md) - [SQQQ.US](https://longbridge.com/en/quote/SQQQ.US.md) - [QID.US](https://longbridge.com/en/quote/QID.US.md) - [.SPX.US](https://longbridge.com/en/quote/.SPX.US.md) - [.DJI.US](https://longbridge.com/en/quote/.DJI.US.md) - [GS.US](https://longbridge.com/en/quote/GS.US.md) - [AAPL.US](https://longbridge.com/en/quote/AAPL.US.md) - [META.US](https://longbridge.com/en/quote/META.US.md) - [AMZN.US](https://longbridge.com/en/quote/AMZN.US.md) - [MSFT.US](https://longbridge.com/en/quote/MSFT.US.md) - [FDS.US](https://longbridge.com/en/quote/FDS.US.md) - [W4VR.SG](https://longbridge.com/en/quote/W4VR.SG.md) ## Related News & Research - [LIVE MARKETS-How bond vigilantism can hit stocks](https://longbridge.com/en/news/294511421.md) - [LIVE MARKETS-Life after the Fed put](https://longbridge.com/en/news/294717422.md) - [Diesslin Group Inc. 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