South Korea's benchmark KOSPI index officially entered bear market territory on Wednesday, tumbling more than 20% from its peak in June. The index fell 5% during the session, marking a sharp reversal from earlier highs fueled by artificial intelligence enthusiasm.
AI-Led Rally Unravels
The selloff was concentrated in heavily weighted AI-linked names, particularly chip giants Samsung Electronics (SSNLF) and SK Hynix. Traders pointed to excessive investor positioning in these stocks as a key factor behind the sharp decline. Despite strong memory prices and earnings, expectations for AI-driven growth have not materialized at the pace the market anticipated, raising concerns about concentration risk within the index.
Profit-taking has spread across the market, with volatility spiking. Price swings of 5% to 10% have become more frequent as retail activity and AI-focused fund flows reshape trading dynamics. The KOSPI's decline from its June high now exceeds 20%, fulfilling the technical definition of a bear market.
Global Markets Under Pressure
The turmoil in South Korea was part of a broader global market selloff. U.S. stock futures slipped, with E-mini S&P 500 contracts down 0.8%, as Treasury yields climbed to 4.58%, a four-week high. Rising bond yields increase borrowing costs for consumers and businesses, weighing on rate-sensitive sectors like real estate, banks, and small caps.
Inflation concerns persist, with one-year U.S. inflation expectations holding at 3.7%. Declining crude stockpiles have also stirred fuel price worries. Investors are now turning their attention to upcoming earnings reports from major companies like PepsiCo (PEP) and Delta Air Lines (DAL) for clues on consumer demand and spending pressures.
Small Caps Outperform
Amid the broader market weakness, U.S. small-cap stocks have been a bright spot. The Russell 2000 index posted a 22% gain in the first half of 2026, its strongest first-half performance since 1991, according to Charlie Bilello, Chief Market Strategist at Creative Planning. The index outperformed the S&P 500 and Nasdaq by more than 12%. All 11 sectors within the Russell 2000 were positive, led by technology.
Analysts point to valuations and earnings as key drivers of small-cap strength. ETFs tracking small caps, such as IWM, traded higher on the day despite mixed sentiment.
Commodities and Geopolitics
Oil prices fell on Thursday as the market weighed new U.S. military strikes on Iran and heightened risks to shipping through the Strait of Hormuz, a critical chokepoint for global crude supplies. Brent crude lost 1.32% to $76.99 a barrel, while U.S. WTI slipped 1.2% to $72.64. The strikes followed Iranian attacks on Kuwait and Bahrain, after President Donald Trump declared an interim ceasefire with Iran "over."
Goldman Sachs noted that risks to Gulf shipments could either ease or intensify by the end of July. Insurance sources reported that heightened war risk is leading some shippers to reconsider sending vessels through the area.
Corporate Highlights
In corporate news, 7-Eleven reported $349 million in profit last quarter, driven by higher gasoline prices in the U.S. Even though fewer customers filled up, the convenience store chain benefited from rising fuel costs.
SAP (SAP) was upgraded to Strong Buy by analysts as its cloud revenue surged 27%, with a growing backlog signaling strong demand for its cloud tools. The company's shift away from legacy software is seen as a key driver of its earnings outlook.
Meanwhile, Pason Systems (TSE:PSI) slipped below its 200-day moving average after insider sales. The stock traded at C$12.63, below its 200-day average of C$12.97. Analysts maintain a Buy rating with a C$15.12 target.
