The Fed turned hawkish, yet US stocks hit a new high—but this new high is more fragile than before.

Conclusion first: On June 18th, both the S&P 500 and Nasdaq hit record highs, led by chip stocks (the semiconductor sector ETF SMH rose 3.67%). But what's different this time is that the Fed is pivoting towards rate hikes, no longer "flooding the market with liquidity." In other words, this new high is propped up by the story that "AI companies will still spend big on chips," not by loose money. What it means for you: You can chase it, but there's no safety net below, so control your position sizing.
Why is this rally so strong? The new Fed chair signaled hawkishness on Wednesday, causing a market drop. Then on Thursday, news that "Apple is looking to Intel to make chips" pushed the market up in a single day to a new high. And it wasn't just a few big stocks holding it up—even small-cap stocks (Russell 2000) rose 2.12%, indicating a collective willingness to take risks (the market calls this risk-on, high risk appetite).
So what's missing? The Fed as the "buyer of last resort." For the past decade, every time the market hit a new high, there was a Fed ready to cut rates and inject money to backstop it. This new chair, Warsh, is doing the opposite: hinting at possible rate hikes this year (9 out of 18 policymakers support it) and raising the 2026 inflation forecast from 2.7% to 3.6%. Simply put—he's tightening, not easing.
So what's holding it up now? One sentence: "AI companies won't buy fewer chips just because of rate hikes." As long as this statement holds, the stock price rises; but once any major company says in its earnings report "we're going to spend less" (this is called capex, capital expenditure guidance), the story breaks. The July earnings season is the test.
What should you do? First, you can participate, but don't go all in at the new high, keep some cash. Second, keep a close eye on the core PCE data released by the US on June 25th (the Fed's most-watched inflation gauge)—if inflation exceeds expectations, rate hike expectations will heat up, and the most expensive tech stocks will fall first. Third, there are already "warning signs": interest-rate-sensitive regional banks and Bitcoin have been falling these past few days (Bitcoin once fell below $60,000).
In a nutshell: It's a new high, but this time there's no net below. You can follow the direction, but keep your position light.

$VanEck Semiconductor ETF(SMH.US) $Invesco QQQ Trust(QQQ.US)