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The US equity market sold off dramatically on June 23rd led by weakness in technology stocks. The Nasdaq Composite index tumbled 2.2% and Reuters News wrote that the selloff was due to worries about debt-funded spending for AI, coupled with concerns about a hawkish Federal Reserve. The characterization of the Fed as “hawkish” is a direct reference to the Fed’s June dot-plot that indicated nine of 19 Fed Board members had penciled in a rate hike for this year. In March, no officials expected a rate hike in 2026. This was a definite change, but in our view it is a ruse to use the dot-plot as a reason for the market’s selloff. Even former Fed Chair Jerome Powell has stated that “The dots are not a great forecaster of future rate moves,” and there is actually “no great forecaster.” We agree. Moreover, the Fed has never been a good predictor of rates, inflation or the economy. To us, this explanation for the June 23rd selloff is nonsensical. More importantly, neither the debt-funded AI spending nor the dot-plot were new developments.
Look Eastward
But there was something that happened on June 23rd and it happened in South Korea. After soaring past the historic 9,100 level a day earlier, the South Korean SE KOSPI index plummeted 901.71 points, or nearly 10%, on June 23rd. The KOSPI index is unique since it is dominated by two semiconductor stocks, Samsung Electronics Co. LTD. (005930.KS – 310000) and SK Hynix Inc. (000660.KS – 2555000), that together make up more than 50% of the index. Each of these stocks fell 12% or more for the day, wiping out billions in market value and triggering an automatic 20-minute bourse-wide trading halt during the trading session. That is drama. The trigger for this selloff appears to have been the Governor of South Korea’s Financial Supervisory Service, Lee Chan-jin, who said the government was too hasty in approving leveraged funds tied to some of the country’s semiconductor stocks. In May, South Korea introduced 16 domestic products, which aim to deliver 2x the daily performance of the underlying chipmakers. These highly leveraged products exploded in popularity and grew to over $9 billion shortly after their launch. Margin debt also rose to a record high in June and with the KOSPI up over 100% year-to-date, the leveraged South Korean equity market was an accident waiting to happen. And note, even after this week’s decline, the iShares MSCI South Korea ETF (EWY – $192.20) is up 90% YTD. See page 14.
This was not the first time semiconductor stocks have come under pressure, but the combination of huge price gains, soaring margin debt, and new highly leveraged ETF vehicles, made the KOSPI index vulnerable to any hint of bad news. And remember, money is fungible. The loss of billions of dollars in South Korea is a liquidity event that would certainly trigger selling in the US.
We think this is a better explanation for Tuesday’s selloff in the US equity market. And while concern regarding debt-funded AI spending is warranted, the KOSPI decline is what most likely caused that concern. Nevertheless, a correction and a little bit of fear is good for equity markets. It is not fear, but mania that worries us, and that does not describe the current US market.
Fundamentally Sound
In fact, the good news keeps on rolling on in terms of earnings forecasts. This week the LSEG IBES consensus earnings estimate for 2026 rose $0.43 to $340.82, the 2027 forecast rose $1.38 to $399.25 and the 2028 forecast rose $0.50 to $447.06. The S&P Dow Jones consensus earnings estimate increased $0.34 for 2026 to $336.97 and rose $1.03 to $395.02 for 2027. The market is now trading at 21.6 times the IBES 2026 estimate and 18.4 times the 2027 estimate. A blended 2026-2027 PE ratio for the US market is currently 20 times. That multiple coupled with the current CPI of 4.3% YOY sums to 24.3. This is an important statistic because market peaks tend to appear when this sum is substantially higher than 24.4. See page 7. And with the price of crude oil falling, we expect inflation will also decline in coming months and bring this ratio down. In short, fundamentals continue to support the equity market.
Good News in Economic Data
Recent economic news was surprisingly positive. Advance estimates for retail and food services sales were $763.7 billion, up 0.9% for the month and up 6.9% YOY. This was a big increase from April’s sales, which were up 4.8% YOY. May was also the highest year-over-year growth rate in total retail sales since January 2023. Motor vehicles and parts sales were $140.3 billion, up 4.4% YOY, the largest YOY pace since September 2025. US census data showed real retail sales for May were up 1.0% YOY, the best since December 2025. See page 3.
May retail sales excluding motor vehicles and parts grew 7.5% YOY, the best since January 2023. But more importantly in this period of high gasoline prices, retail sales excluding motor vehicles and parts and gasoline station sales, were a record $559.8 billion, up 5.6% YOY. This was the best YOY pace since December 2023. May’s record sales were led by miscellaneous stores, nonstore retailers, and furniture. See page 4.
The pending home sales index increased by 3.8% in May due to an increase in the number of properties under contract. The index was up 4.8% YOY with positive data across all four regions of the US but the Midwest led all regions with a stellar 9.3% YOY increase. In the first quarter of the year, the debt service ratio fell 16 basis points to 11.16%, which is 43 basis points below the first quarter 2020 level, i.e., before the pandemic began to negatively impact consumer finances. The mortgage component fell from 5.92% to 5.88% and the consumer component fell from 5.40% to 5.29%. Consumers continue to hold onto low-rate loans obtained during the pandemic and personal income is slowly growing. Personal income for May will be released later this week. See page 5.
Technical Indicators are Neutral or Positive
The 25-day up/down volume oscillator is 0.52, relatively unchanged from last week and still neutral. This indicator nearly registered a confirming overbought reading of 3.0 or greater in April but failed to do so. This was a sign of weakness in an otherwise bullish collection of technical data. In short, corrections are not surprising, but the long-term trend remains favorable. See page 7. The NYSE cumulative advance/decline line made a confirming all-time high on June 16, 2026 which is positive. New highs are averaging 288 a day and new lows are averaging 141. Again, with both averages above 100, this indicator is neutral but tilts bullish. See page 9. Individual investor sentiment has been on a roller coaster in recent weeks, and last week’s AAII survey showed bullishness rose 6.2% to 36.6% and bearishness fell 8.3% to 39.4%. Bullishness is now below average for the fifth time in eight weeks, while bearishness is above average for the 19th week in a row. The 36.6/39.4 split between bull and bears is neutral but is actually a significant positive since sentiment is far from displaying mania for equities! All in all, we continue to be a buyer of equities on weakness. And there is more good news. Argentina, France, Germany, Mexico, Norway and the United States have secured their spots in the knockout rounds in the 2026 World Cup. Go USA!
Gail Dudack
PLEASE NOTE: Unless otherwise stated, the firm and any affiliated person or entity 1) either does not own any, or owns less than 1%, of the outstanding shares of any public company mentioned, 2) does not receive, and has not within the past 12 months received, investment banking compensation or other compensation from any public company mentioned, and 3) does not expect within the next three months to receive investment banking compensation or other compensation from any public company mentioned. The firm does not currently make markets in any public securities.
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