To The Moon

In the recently concluded month of June, the US stock market exhibited an extremely fragmented "frenzy." On the one hand, macro funds were extremely fearful of missing out, with the SPY's single-month net inflow surging to a staggering $15.85 billion, nearly triple the size of May's inflow. On the other hand, the valuations of micro-level giants were pushed to extremes, with Tesla taking a commanding lead at a P/E ratio of 386.12x.

$Tesla Motors(TSLA)$ $Tradr 2X Short TSLA Daily ETF(TSLQ)$ $ProShares Ultra TSLA ETF(TSLI)$ $SPDR S&P 500 ETF Trust(SPY)$ $Tradr 2X Long SPY Quarterly ETF(SPYQ)$

However, beneath this facade of broad-based index prosperity and the wild dance of giant caps, underlying capital was quietly rotating. Most surprisingly, the previously highly sought-after Information Technology sector (XLK) recorded a contrarian net outflow of $332 million in June. What signal does this deep-seated dislocation of "the broader market frantically attracting capital while core tech bleeds" ultimately release? This week, we will deeply analyze this massive reshuffling of US stock capital concealed beneath the high levels of the indices.

$Technology Select Sector SPDR Fund(XLK)$

I. Absolute Equity-Bond Valuations Indicate Further Intensification of Pressure on US Stocks

From the perspective of absolute equity-bond valuations, the broader S&P 500 currently remains deeply entrenched in an expensive range. Measured by subtracting the 10-year US Treasury yield from the S&P 500 earnings yield, this spread not only remained in negative territory throughout June, but its overall median also shifted further downwards compared to May, roughly ranging between -1.24% and -1.43%. This indicates that the static yield compensation provided by equity assets continues to be significantly lower than the risk-free interest rate. This means that the US stock market's current ability to maintain high levels relies even more extremely on earnings expectations, premium valuations of leading stocks, and the support of the liquidity environment, and completely cannot be established on the logic that "equities are cheaper than bonds."

Looking at the overall trend in June, the spread exhibited clear characteristics of wide fluctuations and bottom-testing: from the beginning to the middle of the month, the spread fluctuated violently and trended downwards overall, hitting an intra-month low around June 19 (breaking below the -1.40% mark); subsequently, as the end of the month approached, the spread experienced a certain degree of rapid recovery, narrowing to a peak of around -1.25%. Despite the late-month rebound, the overall high pressure on the valuation side in June did not substantively dissipate, and the market's margin of error for the flawless materialization of future corporate earnings is becoming increasingly low.

$US10Y(US10Y.BOND)$ $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $E-mini S&P 500 - main 2609(ESmain)$ $Micro E-mini S&P 500 - main 2609(MESmain)$

II. Relative Sector Valuation Divergence Becomes Prominent, with Structural Overvaluation Characteristics Persisting

If the equity-bond spread answers the question of whether the US stock market as a whole is cheap, then the divergence in sector valuations further reveals that the current high valuations are not evenly distributed, but rather carry obvious structural characteristics.

According to data and statistical methods from World PE Ratio, as of June 30, the overall P/E ratio for the S&P 500 index was 26.80x, placing it in the Overvalued range over 5-year and 10-year dimensions, and in the Expensive range over a 20-year dimension, indicating that the index's overall valuation is at a historically high level in the medium to long term. Breaking it down by sector, current valuation pressures are primarily concentrated in certain core industries. The Industrials sector is in the Expensive range across all three dimensions (5-year, 10-year, and 20-year). The Information Technology sector's absolute P/E ratio reached the market's highest at 37.82x, sitting in the Overvalued range on 5-year and 10-year horizons, illustrating that high valuations are mainly driven by individual heavily-weighted sectors.

$Technology Select Sector SPDR Fund(XLK)$ $Real Estate Select Sector SPDR Fund(XLRE)$ $Industrial Select Sector SPDR Fund(XLI)$ $Consumer Discretionary Select Sector SPDR Fund(XLY)$ $Health Care Select Sector SPDR Fund(XLV)$ $Consumer Staples Select Sector SPDR Fund(XLP)$ $Energy Select Sector SPDR Fund(XLE)$ $Financial Select Sector SPDR Fund(XLF)$ $Communication Services Select Sector SPDR Fund(XLC)$ $SPDR S&P 500 ETF Trust(SPY)$

Concurrently, technical signals reflect capital's structural trend preferences. The Information Technology sector's deviation from its 200-day moving average reached +26.03%, while the Industrials sector was at +12.80%, indicating that despite high valuations, these particular sectors still have strong price momentum support in the short term. However, this situation is not widespread across the entire market. For example, the Consumer Discretionary sector also has a high P/E ratio (29.79x, Overvalued over 5-year/10-year periods), but its deviation relative to the 200-day moving average has turned to -0.25%, showing initial signs of divergence where valuations are high but price momentum is weakening.

On the other hand, there are also sectors within the market with relatively low valuations or that are at their own historical bottoms. The Communication Services sector currently has a P/E ratio of 16.67x, which is Undervalued over a 5-year dimension, but its deviation relative to the 200-day moving average is -6.97%, making it the weakest performer across all industries; this illustrates that static low valuations have currently failed to attract trend-following capital for covering. In addition, the Real Estate sector has an absolute P/E ratio of 32.13x, yet it shows up as Undervalued under the historical coordinate systems of 5, 10, and 20 years, reflecting significant differences in pricing standards for different sectors under their respective historical cycles and macro environments.

From an allocation perspective, the core feature of the current US stock market is the coexistence of high valuations and high divergence. The strength of the indices largely relies on the support of a few high-momentum sectors like Information Technology, whereas sectors such as Consumer Discretionary and Communication Services have seen a slowdown in momentum or are in a state of weak consolidation. This means that the overall market's dependence on the future realization of earnings for highly valued sectors is rising. If the future performance of core sectors fails to fully digest their current pricing levels, the structural adjustment pressure facing the market will increase in the absence of effective rotational support from other sectors.

(Note: Average P/E ratios and standard deviations are calculated after excluding the top and bottom 10% outliers; P/E ratios greater than 70 or less than 1 are logarithmically normalized to reduce distortions from extreme values. Within a specific time dimension, a P/E ratio falling in the (μ - σ, μ + σ) range is defined as "Fair", above (μ+σ) as "Overvalued", and above (μ+2σ) as "Expensive"; below (μ-σ) as "Undervalued", and below (μ-2σ) as "Cheap". When the ETF price is above the 200-day moving average, the trend is considered positive.)

III. Looking at Capital Flows, Index Frenzy Masks a Major Sector Reshuffle, with Tech Stocks Surprisingly Seeing "Contrarian Outflows"

Against the backdrop of high overall valuations and widening sector divergence, the capital flow data for June not only continued the characteristic of "heavy on broad indices, light on sectors," but also underwent a drastic logical shift in the underlying structure.

According to ETF Db data over the past month (May 29 to June 29), the market's pursuit of broad-based indices reached a near-frenzied level: SPY net inflows surged to an astonishing $15.85 billion, nearly three times the scale of May ($5.85 billion). However, as seen from the daily net flow trend chart, this buying was not a smooth ride all the way. In mid-June (around the 17th), there was an extreme sell-off with single-day outflows exceeding $10 billion, but this was soon forcefully offset by concentrated bottom-fishing capital at the end of the month (with multiple single-day inflows exceeding $5 billion). This indicates that current funds are extremely terrified of missing out at the macro level, and the index's absorption capacity is exceptionally robust.

Yet, under the cover of this "index prosperity," capital flows at the sector level experienced a fundamental reversal compared to May, releasing a highly critical portfolio rebalancing signal:

Firstly, core momentum sectors experienced an "inversion." While the indices were frantically attracting money, the Information Technology sector (XLK), which was the most sought-after in May, unexpectedly recorded a net outflow of $332 million in June. This massive divergence of "large net inflows into broad indices versus net outflows from core tech ETFs" strongly suggests that institutional capital may be taking profits on tech stocks at high levels, or substituting single tech exposures with broad indices, and that the stability of holdings within the tech sector is loosening.

Secondly, the roles of pro-cyclical and defensive sectors swapped. In June, the sectors that truly received substantial capital additions were Materials (XLB, +$982 million) and Industrials (XLI, +$921 million), which are highly correlated with macroeconomic recovery, as well as Utilities (XLU, +$574 million), which possesses dividend defensive properties. In stark contrast, the traditional safe-haven sector, Consumer Staples (XLP), suffered the most brutal sell-off, with net outflows reaching $1.12 billion, forming a 180-degree U-turn from its net inflow trend in May. Additionally, Communication Services (XLC, -$938 million) and Energy (XLE, -$652 million) also faced clear capital withdrawals.

Overall, capital behavior in the US stock market in June displayed a very strong sense of "fragmentation." On the one hand, investors utilized SPY as a macro tool to maintain massive long exposures; on the other hand, at the micro level, they were frantically dismantling the previous "tech + consumer" crowded trades. The large-scale withdrawal of capital from tech and consumer staples in favor of betting on industrials and materials suggests that the market is attempting to front-run a new trading logic of a "soft economic landing combined with a cyclical recovery." This deep-seated dislocation between broad indices and sectors, and between momentum and capital, will be the core hidden danger that triggers future market volatility.

IV. The High-Weight Landscape of the M7 Remains Unchanged, While Internal Valuations and Performance Diverge Significantly

Looking from the perspective of overall index structure and macro market capitalization, the "Magnificent Seven" (M7) remain the absolute core anchor supporting the broader US stock market, with the overall market exhibiting a landscape of extremely high weight concentration. Reviewing the one-year trend from May 2025 to May 2026, the total market capitalization of the M7 experienced a complete cycle starting from $16.5 trillion, accompanied by phased pullbacks along the way, and finally surging strongly again. As of May 2026, the total market cap of the M7 had broken through the $23 trillion mark in one fell swoop, setting a new historical high. Concurrently, their weight as a percentage of the total S&P 500 market cap climbed all the way from an initial 31.5% and has remained anchored at a high level above 35%. This index structure of "giants hijacking the broader market" implies that the reliance of US passive allocation funds on top-tier tech assets is at a historical extreme high, and the broader market's trajectory depends to a large extent on the rise and fall of these seven companies.

However, this superficial high concentration does not mean that the internal trends and fundamentals of the giants are completely synchronized; the companies are experiencing dramatic internal sorting at the valuation level. According to the latest trailing twelve months P/E (PE TTM) data, Tesla takes a commanding lead with an astonishing P/E ratio of 386.12x; even after logarithmic compression in the charts, its valuation premium still displays extreme characteristics. This indicates that the market's pricing logic for it has long since departed from the traditional auto manufacturing profitability model, and has instead heavily overdrawn its long-term narrative in cutting-edge AI technologies such as autonomous driving and humanoid robots.

In contrast, the valuations of the remaining six giants are relatively rationally concentrated within the 20x to 35x range: Apple and Nvidia enjoy medium-high valuations of 35.08x and 30.64x, respectively, relying on a solid hardware ecosystem and a monopoly position in AI chips; Amazon and Google follow closely at 28.50x and 26.95x, respectively; meanwhile, Microsoft and Meta are situated at relatively lower levels of 22.22x and 20.49x, respectively, with Meta in particular demonstrating extremely high valuation cost-effectiveness while maintaining strong cash flows.

$Apple(AAPL)$ $Direxion Daily AAPL Bull 2X Shares(AAPU)$ $NVIDIA(NVDA)$ $Alphabet(GOOG)$ $Meta Platforms, Inc.(META)$ $Tesla Motors(TSLA)$ $Microsoft(MSFT)$ $Amazon.com(AMZN)$

At the level of short-term market momentum and individual stock performance, the divergence within the M7 is equally thoroughly demonstrated. Against the backdrop of the S&P 500 index recording a +1.77% gain this week, as many as six companies in the M7 camp successfully outperformed the broader market. Among them, Tesla once again played the role of a sentiment bellwether, taking the top spot with an explosive weekly gain of +10.77%, revealing exceptionally strong characteristics of capital gaming and momentum chasing. Google and Nvidia also followed closely with weekly returns of +5.57% and +3.93%, respectively. Furthermore, Amazon (+2.43%), Meta (+2.37%), and Apple (+1.97%) all stood firmly above the S&P 500 baseline, together forming the absolute main force driving up the broader market. However, in this widespread rally, Microsoft showed obvious fatigue and stagnation, edging up only +0.01% for the week and closing nearly flat, making it the only stock among the M7 to significantly underperform both the broader market and its peers. This illustrates that even in a macro environment where the broader market is performing well, capital rotation and individual stock noise within the giants are intensifying, and investors' allocation towards giant assets is shifting from "mindless overall buying" to more refined screening.

V. Conclusion

Overall, the core characteristics of the current US stock market are the coexistence of "high valuations, strong absorption, and extreme divergence." The equity-bond spread remaining deeply negative indicates that the broader market's sustenance at high levels has completely detached from the pricing logic of "equities are cheaper than bonds," and relies extremely on earnings expectations and liquidity support. Despite valuation pressures, funds have extreme anxiety about missing out, and the frenzied net inflows of over $15 billion into broad-based indices in a single month have built a formidable bottom-absorption capacity for the broader market.

At the micro level, although the "Magnificent Seven" (M7), acting as the core anchors of US stocks, have repeatedly hit new highs in total market cap and index weight (over 35%), their internal homogeneous rally has come to an end. Whether it's the massive gap between Tesla's extreme P/E ratio of over 380x and Microsoft's P/E in the low 20s, or the sharp contrast in weekly returns, these all indicate that chips within the giants are starting to loosen, and capital allocation is shifting towards refined cherry-picking.

In summary, the continued upward trajectory of US stocks will increasingly demand the flawless realization of corporate earnings, rather than relying solely on valuation expansion. The key to future breakouts lies not only in whether the strength of broad-based indices can be maintained, but also in whether this "divergence" within highly valued sectors and core giants will further intensify and transmit to the broader market.