The "Black Storm" in July is not the end; the real test in August has only just begun.

In July 2026, global stock markets experienced a "black storm" driven by the collapse of faith in AI, the leveraging collapse in South Korea, and the shock of Middle Eastern oil prices. The Sci-Tech Innovation 50 index plummeted nearly 26%, while the South Korean KOSPI fell over 22% within a monthsecond only to the Asia Financial Crisis of 1997. The Philadelphia Semiconductor Index dropped more than 20%. However, in the last two trading days of July, the KOSPI surged by 17.91% in a single day, setting a historical record, and the Philadelphia Semiconductor Index rose by over 8%, leading to a violent rebound in global markets. At the opening of August, the core question for the market was no longer "how much further will it fall," but rather "after the rebound, has the pricing logic changed?" Comparison of monthly changes in major global stock indices in July 2026 The selling pressure came not only from news but also from imbalanced positions. The immediate trigger for the global market in July was the collapse of the "AI stock god." The hedge fund Situational Awareness, led by Leopold Aschenbrenner, faced margin calls due to leveraged bets on AI stocks and was forced to sell publicly held equity assets in a declining market, ultimately resulting in Citadel acquiring most of its stock portfolio. At one point, the fund's assets peaked at $45 billion and plunged 67% in July alone. However, attributing the July volatility solely to one hedge fund's collapse underestimates the structural depth of the issues. The more fundamental drivers come from two levels: firstly, the extreme crowding of AI positions. Goldman Sachs' high-beta momentum basket in July recorded its worst monthly performance since November 2000, with the scale and speed of the momentum factors collapse reaching historical levels. Secondly, the uncertainty surrounding the Federal Reserve's policy path surged sharply. During the July FOMC meeting, the vote to maintain interest rates was 9 to 3, with the three dissenting votes in favor of a rate hike representing the highest number since 2016. After Wallach canceled forward guidance, market pricing for a rate hike in September fluctuated dramatically around the meetingfrom about 25 basis points before the meeting to a low of 13 basis points after, before rising again to 16.5 basis points. Data retrieved from WindClaw shows that while implied volatility in various markets receded from its peak by the end of July, the term structure remained deeply invertednear-term volatility was far higher than that of long-term, indicating that the market was not pricing in "the crisis is over," but rather "the most intense liquidation phase may have passed, yet uncertainty is far from resolved." The dual drivers of market volatility in July: triggering factors and structural factors (The image indicates AI.) The scale and speed of the momentum factors collapse reached historical levels, while the deeply inverted volatility term structure indicates that the market was not pricing in "the crisis is over," but rather "the most intense liquidation phase may have passed." The long end of U.S. Treasuries is telling a different story. After the July FOMC meeting, the market displayed an extraordinarily unusual post-meeting trend: the yield on the 2-year U.S. Treasury fell from 4.31% to 4.27%, whereas the 30-year yield rose significantly by over 10 basis points, surpassing 5.2%the highest level since 2007. The yield curve exhibited a rare "steepening"the short end fell due to dissipating rate hike expectations, whereas the long end surged due to risks of inflation de-anchoring. This trend conveys a crucial signal: Wallach is attempting to have market rates replace policy rates to achieve tightening. He clearly stated at the press conference that the recent significant rise in nominal and real yields on U.S. Treasuries has considerably tightened financial conditions; "the market has already done part of the work for the Federal Reserve." However, the bond market's response indicates that investors are not fully convincedif the Federal Reserve relies solely on "talk" without action, inflation expectations might further de-anchor, and long-term rates will continue to rise. A comparison of the FOMC statement wording with the directional changes in Treasury yields across various maturities reveals how the market "translates" each of Wallach's statementsshort-end buys "no rate hike," while long-end sells "no commitment." This has dual implications for global asset allocation in August. On one hand, the 30-year Treasury yield surpassing 5.2% means that the risk-free rate anchor for global risk assets is systematically shifting higher, imposing structural, not temporary, pressure on high-valuation growth stocks. On the other hand, the combination of rising long-end Treasury rates and a weakening dollar index (with the dollar dropping below the 100 mark post-FOMC) points toward a deeper concernthe market is not only trading inflation but also the sustainability of U.S. fiscal policy. A correlation scan of U.S. Treasury yields and dollar index monthly data over the past 20 years using WindClaw reveals that this combination of "rates and exchange rates weakening in unison" is extremely rare, often corresponding to a recalibration of the global asset pricing framework. Wallach is attempting to have market rates replace policy rates to achieve tightening, but the surpassing of 5.2% by the 30-year Treasury yield signals a systematic upward shift in the risk-free rate anchor for global risk assetsthis pressure on high-valuation growth stocks is structural and not temporary. Three windows to watch in August As we enter August, three clues will determine the direction of global markets. First, the U.S. non-farm payroll data on August 7. The June PCE saw its first month-on-month decline in four years, with core PCE year-on-year dropping to 3.3%, but the savings rate fell to a four-year low of 2.7%. If the July non-farm report shows a significant cooling in the labor market, Wallach's "stand pat" logic will be supported; however, if employment remains strong but inflation stagnates, expectations for a September rate hike will quickly rise. Second, the Jackson Hole conference in mid to late August. Wallach has confirmed his attendance and has further communication planned with five working groups before the event. This will be his first concentrated scrutiny by global central bank officials and the market since canceling forward guidance. Any hints regarding a new policy framework could trigger steep asset price re-evaluations. Third, the situation in the Middle East and the trajectory of oil prices. In July, Brent crude oil rose cumulatively by 31%, while U.S. crude rose by 26%, serving as core variables driving global inflation expectations and rate hike anticipations. After the U.S. military completed a new round of strikes against Iran on July 29, whether a diplomatic window opens will directly determine the direction of oil prices in Augustand consequently influence the Federal Reserve's policy space. Timeline of the three key observation windows in August (The image indicates AI.) The direction of the market in August depends on three verifiable windowsthe non-farm data testing the resilience of the labor market, the Jackson Hole conference assessing the Fed's new framework, and the Middle East situation assessing the oil price trajectoryunexpected outcomes from any one of these windows could trigger significant re-evaluations of asset prices. This article is reproduced from the "Wind Information WeChat public account, edited by Xu Wenqiang.