Things you need to know
- Well tech stole the show yesterday and will steal it again today!
- While SK Hynix is oversubscribed, Samsung is getting clocked!
- Bonds are now entering the ‘danger’ zone. Oil up, Gold down.
- Prices Paid declines; PMI remains in the expansion zone – that’s good!
- Try the Classic Panzanella Salad
Stocks ended Monday higher as investors ran right back into technology, semiconductors and the broader AI complex after last week’s decline. (Although that will most likely change this morning…. see below).
The Dow gained 155 points, closing above 53,000 for the first time. The S&P added 55 pts, the Nasdaq came in second place – rising by 288 pts or 1.1%, the Russell added 14 pts, the Transports got sold – losing 144 pts, the Equal Weight S&P essentially ended the day flat – it was up 1 pt, while the Mag 7 stole the show – rising 626 pts or 1.9%. The interesting thing here is that yesterday, the rally was NOT as broad as it has been – note the performance of the Equal Weight S&P…… In fact, more S&P names fell than rose, which tells you that this was a move driven by oversold tech names.
I mean just look at the AI ecosystem….Tech up 1.6%, Disruptive Tech up 2.9%, Cyber up 2.5%, Semi’s up 2.7%, Software up 1.3%, Memory name ETF – DRAM exploded – rising by 6.8% – and speaking of the memory names – SK Hynix is prepping to launch their formal US listing on the Nasdaq on Friday – attempting to take advantage of ‘surging investor demand for the high-flying memory chip sector’…..and as you can imagine – the offering is already oversubscribed – meaning there is more demand than supply! In yet another sign that investors continue to chase anything tied to the AI infrastructure story.
But is this all about to change? Overnight Samsung (South Korea) reported earnings…..
They beat on all metrics…reporting operating income of 89.4 trillion Won – this vs. the estimate of 84.2 trillion. Revenue doubled to 171 trillion Won – again beating the expectations – yet they ‘FAILED TO WOW’ even after profits surged more than 19 x’s as the question remains……Can these valuations continue and can the spending continue?
So, what happened…. they sold it off sharply…. down 8.3% …..taking the whole tech sector down leaving the Kospi (South Korean Index) down 4.6%! Will this be the market’s reaction this quarter? Companies beat, but if they don’t RAISE enough or sound giddy enough – they hit the SELL button?
Now let’s not light our hair on fire – the stock was up 159% going into the report…….so is an 8% drop a disaster? I’d say no, but it depends on when you got in and how you handle risk……Are you overweight tech? Are you overweight Samsung? Are you levered up with a 2 & 3 x’s ETF that amplifies the up move while also amplifying the down move…. I mean there are so many ways this could go…. You could have been short Samsung and in that case you WON! I guess the point is – you NEVER know what the reaction will be. The lesson isn’t that Samsung is broken. It’s that expectations have become extraordinarily high. In a market priced to perfection, beating estimates is no longer enough—you have to continue to raise the bar and WOW them!
Nasdaq futures are down 300 pts….MU, MRVL, NVDA, AVGO and AMD are also posting declines in the pre-mkt……… I suspect – much of yesterday’s gains in tech will be today’s losses – but let’s be clear, I am not saying the tech trade is over, it’s just not gonna have a good day today. Can you imagine what would have happened if they missed! It would have been a bloodbath! And the world turns…. No matter what – my sense is that SK Hynix does NOT see a retreat in demand….
Bonds did very little – the TLT and TLH lost less than 0.1%….and that kept yields steady…. this morning though, bonds are under pressure (think about the reaction to tech) sending yields up – the 10 yr is now kissing 4.5% and the 30 yr is now above 5% putting us back in the danger zone.
Eco data yesterday showed that the Services PMI remained firmly in expansion territory—a positive sign for the economy. Even better, the Prices Paid component declined to 67.7 from 71.3, reinforcing the trend we saw in last week’s Manufacturing PMI report. While inflation pressures remain elevated, they’re continuing to ease at the margin, and that’s exactly what policymakers need to see.
Today brings little in the way of market-moving economic data, so investors will likely turn their attention to Wednesday’s release of the June FOMC meeting minutes—the first since Kevy Warsh took over as Fed Chair. Will they reveal anything we don’t already know? Probably not. But I do expect the tone to be different. Markets will be looking for clues about how Kevy intends to communicate policy going forward and whether his approach differs meaningfully from JJ’s, Janet’s or Benny’s, returning to a more Greenspan style.
Oil is higher by about $1 this morning, trading near $69.50 a barrel, as traders weigh competing headlines. On one hand, OPEC+ and the UAE are bringing additional supply to market. On the other, reports of renewed attacks on commercial vessels in and around the Strait of Hormuz serve as another reminder that geopolitical risks in the region remain very much alive and ‘normalization’ is not yet ‘normal’. The market continues to balance improving supply against the possibility of renewed disruptions.
Gold, meanwhile, continues to churn. It’s down about $35 this morning to $4,130. Technically, the chart suggests gold remains locked in a broad $4,000–$4,400 trading range. Unless interest-rate expectations shift meaningfully, I suspect that’s where it stays for now.
So overnight – Asian markets got punched in the face – the Kospi down 4.6%, Taiwan down 2.3%, Japan down 2.1%, China lost 1% while Hong Kong and Australia gave back just 0.3%.
European markets are not reacting yet…. but it is early…. Germany and the Euro Stoxx both down 0.4% while France, Spain, Italy and the UK are all up by 0.3%.
US futures are reacting as expected…. the anxiety in tech is causing investors to look at the Big Dow names…Dow futures are up 200 pts. the S&P is down 9, Nasdaq down 300 while the Russell is up 5.
The S&P closed at 7357 – up 55 pts…..Depending on how this Samsung story gets told will dictate the next move in tech and across the broader market. BlackRock framed it well, asking whether AI can turn today’s scarcity into tomorrow’s abundance. That is why earnings season matters so much. Investors want to hear from the hyperscalers. They want to know whether capital spending plans remain intact. They want to know whether management teams are still confident in the buildout. Because until those companies start cutting AI budgets, the infrastructure story remains alive and well.
In the end – the AI investment thesis rests on one simple assumption — that all of this spending ultimately creates dramatically higher productivity, higher margins and stronger earnings. If it does, today’s valuations are justified. If it does not, then those valuations become much harder to defend.
Add in the uncertainty surrounding the mid-terms and it only raises the temperature. Overnight – we saw that Democratic Maine Senate candidate Graham Platner’s run for the roses is all but over -after more negative headlines hit the tape concerning his personal life. Suddenly, the party that was all excited about this new candidate – wants to distance themselves from his latest mess…. leaving that race for the Senate in disarray for the Dems. Now remember – politics do NOT price stocks in the long term, but they can add drama along the way and that my friends is the opportunity.
Give me a call at 561-931-0190 to discuss your goals and your timeline. Let’s assess the risk in your portfolio and your tolerance for volatility – happy to do a complimentary portfolio review and risk assessment.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Classic Panzanella Salad – an Italian favorite.
This is a simple salad – perfect for a hot summer night. This is a dish that rewards patience – it lets the bread and tomatoes sit together (marinate) and talk to each other before you eat it.
Ingredients: 1 loaf day-old rustic Italian bread, torn into chunks; 4 ripe heirloom tomatoes, cut into wedges; 1 cucumber, sliced; 1/2 red onion, thinly sliced; a handful of fresh basil leaves; 3 tbsp red wine vinegar; 1/3 cup good extra-virgin olive oil, s&p to taste.
Toast or air-dry the bread chunks. Toss the tomatoes with a pinch of salt and let them sit for 10 minutes to release their liquid.
Combine bread, tomatoes and their juices, cucumber, onion, and basil in a big bowl. Dress with the red wine vinegar and olive oil, toss well, and let it rest at least 20 minutes before serving so the bread soaks everything up. Taste and adjust (if you need to) just before you serve it.
Buon Appetito