The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Chip dip
Semiconductors dictated the tone of the day again. Concerns about the sustainability of the spending in that world sent shareholders running again. The pain spread to the NASDAQ 100 and then spread to the Mag 8. While the semis bounced early in the day, and clawed back to flat in the afternoon, the broader market already caught the ick. The S&P 500 lost a modest amount for the session, mostly resulting from Mag 8 pain. The treasury curve flattened a bit, which should have helped stocks, but it is unclear whether it did. Precious metals suffered early and recovered, with gold actually printing gains in the end. Crude rallied significantly, with further attacks in Iran and the closure of the Strait of Hormuz being causal factors. Capital flow finally picked up, printing 107%.
What goes up must go down it seems. The semiconductor stocks, while delivering results, are getting second-guessed in the market. Given their role as the epicenter of the AI investment story, their weakness spreads nervousness very quickly and effectively. Most investors are treating the semiconductor selling as a pairing back of excessive gains. This is plausible. Here’s the 1 year chart:
The semiconductor index gained over 75% from late March to late June. That’s unsustainable. So the argument that the prices must retrace, even if the fundamental story is intact, have a case.
That said, the bears also have a case. Why not retrace all the way back to late March levels? Are all of those gains rock-solid value, or just hope inside of momentum?
The debate between the bulls and bears has merit on both sides. I am not seeing one side with a definitive advantage in their claims. For the moment, the market is on the fence. Significant retracement has occurred but panic selling hasn’t.
In the absence of big news, is the market setting up for a test of the 100-day moving average? It looks like that to me.
This matters to the broader market because the semis are influencing the Mag 8, which are dictating the behavior of the S&P 500. Like it or not, the commanding heights of the US stock market are held by the semis.
How they go, we go. How we fell about them, we feel about stocks.
Is the semis’ sentimental balance 50/50 right now? That seems about right. Let’s see how everyone feels next week.
I’d lean in favor of the bulls despite the coin-toss odds. The dip-buyers should be respected for what they done and their consistency. They have to get confident first though, and then they get going.
See you Monday, have a great weekend.
-Mike
Visdom Market Commentary
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