BlackRock Institute published a piece of writing stating that the recent fluctuations in the US stock market are mainly due to the possibility of the Federal Reserve signaling its first interest rate cut in September this week, as well as the market already anticipating multiple rate cuts until next year. In theory, a rate cut by the Federal Reserve would be positive for US risk assets, but last week the S&P 500 index recorded its largest single-day drop since 2022. Despite expectations of multiple rate cuts by the Federal Reserve, the stock market continues to decline, indicating that the momentum of trading is too strong and is expected to reverse in the short term. As BlackRock Institute has mentioned before, the market is still making too many inferences from short-term macroeconomic news. In addition, the Bank of Japan announced an interest rate hike this week. As shown in the graph below, the expected policy rate gap between the Federal Reserve and the Bank of Japan will narrow, and this interest rate differential is an important reason for the yen to fall to a 35-year low. The yen's strength has led to investors who were shorting the yen due to its depreciation, but long on high-yield currencies for arbitrage trading, to close their positions. BlackRock Institute believes that the recent fluctuations in the US stock market are influenced by the expectations of a rate cut by the Federal Reserve, style rotation in US stocks, and exchange rate trends. Investors are advised to beware of these short-term market sentiment disturbances and focus on the profit situation of companies to explore investment opportunities in real industries. One sign of pressure on yen arbitrage trading is that data from the US Commodity Futures Trading Commission (CFTC) shows that leveraged funds closed their short yen positions at the fastest pace since 2011 this month due to the yen's strength. Such a significant closure may be a technical factor causing market volatility and confusion. Furthermore, as a financing currency favored globally, these changes in the yen may also have spillover effects in other markets, tightening the global financial environment. Technical factors such as weak trading activity in the Northern Hemisphere markets during the summer, the stock buyback lock-up period in the first two weeks before the announcement of second-quarter earnings, and market selling off of US stocks may also amplify market volatility. BlackRock Institute maintains its investment strategy unchanged to avoid getting caught up in short-term market fluctuations. BlackRock Institute believes that the Bank of Japan will not push the yen to strengthen further and expects the Bank of Japan to slowly normalize its monetary policy. BlackRock Institute believes that the closure of arbitrage trading is just one part of global investors reassessing risks. Market sentiment has shifted to the attention-grabbing field of artificial intelligence. Concerns of the US potentially further restricting the export of chips to China and whether the high returns on investment in artificial intelligence for large tech companies can be sustained have led to a decline in tech stocks in recent weeks. BlackRock Institute had previously mentioned that top companies in the field of artificial intelligence are vulnerable to short-term market pullbacks due to their exceptional performance. However, artificial intelligence companies continue to show strong profit performance. Data shows that second-quarter corporate profits have generally exceeded expectations, with an estimated earnings growth for the S&P 500 index of around 13%, higher than the initial estimate of 9% at the beginning of the quarter. BlackRock Institute believes that the recent fluctuations in the market are a significant feature of the new macro market landscape. BlackRock Institute is focusing on investment opportunities from real industries. Thanks to capital expenditures in artificial intelligence and infrastructure investments related to incentives such as the "Chip and Science Act", the US economy exceeded expectations in the second quarter of this year, signaling a transformation. Considering that the current Vice President of the US is now the Democratic Party candidate for the next US presidential election and will compete against former President Trump in November, it is important to closely monitor possible policy changes that may occur in the US election.