CHIPS ARE FALLING, AND THE MARKET IS STARTING TO ASK A BIGGER QUESTION
Stocks are now 0-for-2 this week.
Market
And once again, the same three forces are driving the market:
-
Bond yields
-
Oil prices
-
Semiconductor weakness $Philadelphia Semiconductor Index(SOX)$
The Nasdaq took the biggest hit, falling 1.33%. But the real story isn't simply that tech sold off.
It's that the market is beginning to question whether the AI trade has become too crowded, and too expensive.
TECH TAKES ANOTHER HIT
Tuesday's numbers: $NASDAQ(.IXIC)$ : -1.33%. $S&P 500(.SPX)$ : -0.69%. Dow Jones: -0.22%
Technology was the worst-performing major sector, falling 1.9%. $Technology Select Sector SPDR Fund(XLK)$ And semiconductors took the brunt of the selling. $Coherent(COHR)$ -12.8%.
Meanwhile, energy continued moving in the opposite direction. Energy sector: +1.8% with $Targa Resources(TRGP)$ jumped 7.1%.
The market is clearly rotating.
THE AI TRADE IS STARTING TO SPREAD BEYOND TECH
Here's the interesting part. The AI boom isn't just a story about Nvidia and semiconductor companies anymore. It's affecting:
-
Caterpillar, data-center construction
-
Goldman Sachs, financing AI companies
-
Energy, power demand from data centers
-
Industrials, infrastructure spending
That means when the AI trade weakens, the impact can spread far beyond technology. Caterpillar and Goldman both came under pressure Tuesday. The AI ecosystem is becoming enormous.
But that also means the trade has more ways to unwind.
MEANWHILE, OIL AND BOND YIELDS KEEP CLIMBING
This is becoming the market's biggest problem. Oil is rising. Long-term Treasury yields are rising. And both increase the cost of capital.
The 30-year Treasury yield recently reached 5.31%, its highest level since 2007. At the same time, geopolitical tensions are keeping oil elevated.
Companies face higher financing costs. Investors demand higher returns. And expensive growth stocks become harder to justify.
NOW THE CONSUMER GETS ITS TURN
Home Depot delivered better-than-expected results despite a difficult housing environment. And now the market gets a much broader look at the American consumer.
This week brings earnings from: Target, TJX, Lowe's, Walmart.
AND THEN WE GET THE FED MINUTES
FOMC meeting minutes. At the July meeting, the Fed kept rates at:3.50%–3.75%.
But three FOMC members dissented and wanted a 25-basis-point hike. The market is currently debating whether the Fed can remain patient while inflation risks remain elevated.
If the minutes sound more hawkish than expected…Bond yields could move even higher. And that could put additional pressure on technology stocks.
THE BIG QUESTION
Are we witnessing:
-
A healthy rotation away from crowded tech?
-
The beginning of a deeper unwind in the AI trade?
If you found this analysis valuable, Like, Repost, and Follow for more market insights and investment discussions.
This summary is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.
[Salute]
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
