Tonight, four major events including Nvidia, Micron, and the Federal Reserve stress test will reveal the market's final fantasies. If banks successfully pass the health check, it will give new Chair Walsh the confidence to refuse market rescue. Amidst a crash in chip stocks, the market must learn to reprice in the dark without the "Federal Reserve safety net."

Written by: Yanwai Zhi Yi

Source: Wall Street Insight

On June 23, in the afternoon, South Korea's KOSPI plummeted 10%, triggering a circuit breaker. On the evening of June 23, the US chip index dropped 7.9%. On June 24, the KOSPI rebounded by 4%. On the evening of June 24—

it's not over yet.

Tonight, during the first hour of June 25, Beijing time, four events will occur in the same time window. At midnight, Nvidia's shareholder meeting. At 2 AM, Federal Reserve Governor Cook's speech—she will deliver a keynote address at a Cleveland Fed small business seminar. After the US market closes, Micron Technology will present one of the year's most anticipated earnings reports, being a stock that has risen over 300% this year. At 4 AM, the Federal Reserve will announce the results of its annual stress test of 32 large banks, conducted under extreme assumptions of a 10% unemployment rate and the collapse of commercial real estate and corporate bonds.

These events are independent. Nvidia discusses the production ramp-up of its Blackwell and Vera architectures. Micron discusses the demand outlook for HBM. Cook talks about small businesses. The stress test discusses how much loss banks can withstand during a recession.

But they are tied together—by a term that has quietly emerged in the recent two weeks of drops and rebounds: Walsh put option.

This term speaks to the market's hope that the new Federal Reserve Chair Kevin Walsh will step in to provide support during a market crash, just like his mentor Alan Greenspan did. After the Black Monday of 1987, Greenspan lowered interest rates. After Lehman in 2008, Bernanke initiated QE. In March 2020, Powell made emergency rate cuts twice in half a month.

Each crisis deepened this belief. The market has become accustomed to the idea—that when there's a severe drop, someone will step in.

This time, the market is asking: Will Walsh?

And tonight, the intersection of these four events will put this fantasy through a concentrated stress test.

"Walsh Put Option": What is the Market Betting On

The "Federal Reserve Put" is a concept that has circulated on Wall Street for decades: whenever the market experiences a serious decline, the Federal Reserve will intervene to provide support through interest rate cuts, QE, or other tools. Greenspan cut rates after the 1987 market crash, Bernanke initiated QE after 2008, and Powell made two emergency rate cuts in March 2020—each crisis deepens this belief.

Since Walsh took office, the market instinctively projected this belief onto him.

Since May 25, a topic has been intensely discussed in financial media circles in both Chinese and English: "Will the Walsh Put Option appear?"—meaning, the market is asking: when the AI bubble bursts and the US stock market experiences a drop like the recent one in South Korea, will the Federal Reserve under Walsh take action?

But comparing Walsh with Greenspan itself is the biggest misinterpretation of this question.

June FOMC Already Provided the Answer

Just a week ago, on June 17, Walsh chaired his first FOMC meeting. What did he do?

First, Walsh likely did not submit his own interest rate forecast. Economists from Goldman Sachs and Bank of America believe that given Walsh's long-standing criticism of forward guidance—he explicitly stated at the Senate confirmation hearing, "Unlike many of my Fed colleagues, I don't believe in forward guidance tied to economic data"—he probably completely absented himself from his first dot plot.

Second, the committee took the most hawkish action possible in Walsh's absence: the median dot in the dot plot erased the only remaining interest rate cut in 2026. The dot plot from three months ago implied one 25 basis point cut, now it has gone to zero.

Third, at least three voting FOMC members predicted an interest rate hike in 2026. Inflation (CPI 4.2%, PPI 6.5%) has made rate cuts mathematically impossible.

Fourth, the wording of the statement. Morgan Stanley economists pointed out that FOMC should replace "accommodative stance" in the current statement with neutral language—or simply not provide any forward guidance.

This series of actions indicates not that "Walsh will not take action for now," but that Walsh is systematically dismantling the "Federal Reserve signal safety net" that the market has relied on for the past twenty years. He is rebuilding market discipline—first teaching the market to price without a Fed Put.

Stress Test: Clean Results, Contradictory Implications

Tonight's stress test results are almost impossible to "fail."

Last year's tests saw all major banks performing well, with the six largest banks' stock prices rising over 25% that year. This year, the Federal Reserve continued the policy of capital buffer freeze until 2027—meaning that even if a bank performs poorly, its capital requirements will not increase. Bank of America, JPMorgan, and Wells Fargo's stress capital buffers had already dropped to a minimum level of 2.5% last year, and their capacity to continue dividends and buybacks is completely unaffected by tonight’s results.

On June 23, the day of the crash in chip stocks, one detail was overlooked by many analysts: regional bank ETFs (KRE) rose against the trend that day. There was indeed money flowing out of the AI/semiconductor sector, but the direction of withdrawals was not cash—it was banks.

In other words, the banking system itself is not the problem. Tonight's stress test is likely to confirm this.

But the key issue lies right here.

If all 32 banks pass the stress test, with ample capital even under extreme scenario assumptions—this indeed gives Walsh the greatest reason not to intervene in the market.

The logic of the "Federal Reserve Put" has always been: market issues arise → they may transmit to the banking system → the Federal Reserve must intervene. But if the stress test proves the banking system remains robust under a scenario of an AI crash and 10% unemployment, then the logic chain "may transmit to the system" breaks. The decline in asset prices remains an issue of asset prices—it is not a Federal Reserve issue.

Greenspan's Ambiguity vs. Walsh's Ambiguity: The Same Tool, Opposite Purposes

Walsh is often compared to Greenspan—he himself also publicly cites Greenspan as a mentor. The two indeed share a style: Greenspan is known for "if you think you understand what I said, then I definitely didn't say it clearly," and Walsh similarly advocates that central banks should "learn to work without applause, with no audience sitting on the edge of their seats."

But the same tool points in opposite directions.

Greenspan's ambiguity was to leave space for the market—ready to step in when necessary, but without needing to commit in advance. Essentially, "I won't tell you whether I'll intervene, but I might intervene."

Walsh's ambiguity is to leave no illusions for the market—he doesn’t submit the dot plot, he suggests reducing FOMC meetings from eight times a year to four, he hints that press conferences will no longer automatically follow each meeting. Essentially, "I won't tell you my judgment in advance, and you shouldn't assume I will intervene."

The difference between the two lies in: beneath Greenspan's ambiguity is an implicit safety net commitment. Walsh does not have one.

There is a set of numbers worth looking at together: 34 former Federal Reserve officials and staff were surveyed before the June FOMC, with 32 providing predictions—17 believed that a rate hike in 2026 might be appropriate, while 14 believed it should not hike. This is a divided camp. Walsh's primary task is to navigate this division—and not to cater to market sentiment.

The Cumulative Effect of Tonight's Four Events

Back to tonight. The convergence of four events in the same time window means the market is compressed in an extremely narrow information corridor:

If Micron's earnings exceed expectations + Nvidia's shareholder meeting language is strong → chip stocks may continue the rebound trend observed in South Korea on June 24, temporarily masking the "Walsh Put Option" issue.

If Micron's performance falls short of expectations or guidance is weak → chip stocks may come under pressure again after the rebound in Korea, and the "clean results" of the stress test will serve as a footnote for the Federal Reserve's inaction.

At 2:00 AM Beijing time on June 25, Federal Reserve Governor Cook will deliver a video speech at the Cleveland Fed small business seminar. Her topic is small business credit, not financial stability. But in the current market environment—after the global stock market just experienced a round of AI-driven dramatic turbulence—any mention of terms like "credit contraction" or "tightening financing conditions" by any Fed official will be translated into a market signal. (Last December, Cook's speech was briefly priced by the market as a hawkish turn due to her mention of "being wary of asset valuations being too high.")

However, what may best define tonight is not the results of these events themselves—but the gap between the results.

If the stress test is clean, Micron's performance is strong, and Nvidia's outlook is optimistic—that indicates that the AI infrastructure itself is not an issue, and what the market needs to rebuild is confidence in the leverage structure, not faith in AI trading itself. The roller coaster of June 23-24 is merely a bubble-squeezing event, not a bubble burst.

If the stress test is clean, but Micron's performance is weak, and Nvidia's communications are cautious—this leads to a more nuanced situation: evidence of the fundamentals of AI shows cracks, but the banking system remains robust. This means the market will face dual pressures between "asset prices need adjustment" and "the system doesn't need the Federal Reserve to intervene."

Looking Ahead to Three Points

First, Nvidia's shareholder meeting guidance on the production schedule for Vera Rubin (the next generation AI system equipped with HBM4). This is the most immediate variable behind SK Hynix's slowed expansion news for HBM4. If Nvidia confirms a production adjustment, it will not be just SK Hynix's unilateral choice, but the entire supply chain recalibrating.

Second, Micron's wording on the HBM demand outlook. Micron is the world's third-largest HBM supplier, and its quarterly conference call provides not just the seasonal numbers but also firsthand insight into whether "AI storage demand is increasing or peaking." Speculations from SK Hynix’s slowed HBM4 expansion require Micron's wording to verify or falsify.

Third, and most long-term: when will the public relations groundwork for the next FOMC meeting (expected in late July) begin? If the June dot plot erasing rate cut expectations is just the first step, and the July statement begins discussing rate hikes—then all fantasies about the "Walsh Put Option" will be concluded. Not because Walsh did something, but because market expectations have been negated by facts.

Walsh said at the Senate hearing in April: "Central banks should learn to work without applause."

The combination of tonight's four events will mark the first night the market learns to reprice without applause.