Things you need to know
- Stocks closed out the worst week in three weeks.
- The semis are now officially in a bear market – but slow down.
- TSMC crushed it and gets sold, NFLX disappoints and gets sold too.
- China introduces another tech disruptor – whatever!
- Bonds up, yields steady, oil up, gold flat.
- Try the Calabrian Shrimp Scampi.
The major averages ended the week under pressure as the semiconductor selloff accelerated, geopolitical tensions flared once again in the Middle East, and investors continue to question the economics of the AI revolution even as TSMC crushed it and got sold down 2.8%.
Friday morning brought us news that Moonshot – a Chinese AI startup – introduced a cheaper competitive LLM model, and it reopened the DeepSeek panic playbook that sent tech reeling in January 2025. Investors need to ask – if a company in China can build an ‘open weight multi-modal frontier LLM AI model’ (that’s mouthful) at a fraction of the expected cost, are hyperscalers really going to need all the GPUs, servers and power generation the market has been pricing in? THAT was the real spark behind the chip unwind.
(My quick observation is yes…because what history has shown us is that as something gets less expensive – we buy more of it- in fact, falling costs don’t kill demand they accelerate adoption)
Look—we have to be honest. What happens to the AI trade when even the best earnings aren’t good enough? TSMC. MU., ASML. Samsung all crushed it and offered robust guidance over the past month and still got sold – but remember – we discussed in early July when I said that the bar had been raised this earnings season and stocks were priced to perfection, so no one should be surprised if we saw a ‘sell the news’ type of reaction.
The selling then spread across the entire semiconductor complex, dragging down companies that hadn’t even reported yet – NVDA, AMD, MRVL, STX, & INTC. They weren’t punished for disappointing earnings; they were caught in a broad sector-wide de-risking as hedge funds, traders and even some large asset managers locked in gains and reduced exposure to some of the market’s biggest winners. Again, I don’t think it means that the AI story is broken, I think it means the bar was set too high.
So, when a beat-and-raise gets punished, that’s not a stock problem… that’s a POSITIONING problem – it’s a crowded trade – everyone is in on it…. And when the hedge funds and Momo guys pile in and push prices to ‘perfection’ there’s nobody left to buy at the margins and push these names higher…which doesn’t mean there isn’t anyone left to buy them, there are! Long-term investors are happy to back up the truck and step back in because they’re finally getting the opportunity to buy great companies at prices they couldn’t justify just a few weeks ago, reminding us that this is a reset in expectations—not a collapse in the AI story.
Adding to the pressure was Netflix down 7.5%. While earnings were solid, guidance disappointed investors just enough to remind everyone how unforgiving this market can be. Add crude oil ripping through $81 on renewed Iran tensions, and suddenly Friday was a risk-off session.
The Dow gave up 406 pts or 0.8%, the S&P lost 76 pts or 1%, the Nasdaq lost 362 pts or 1.4%, the Russell lost 12 pts or 0.4%, the Transports lost 102 pts or 0.5% the Equal Weight S&P lost 68 pts or 0.8% while the Mag 7 gave back 622 pts 1.8%!
The semiconductor index suffered its worst week since April 2025 and is now down 24% from its recent high, now officially in bear market territory. (but let’s remember – the sector is still UP 74% ytd – so don’t make this a disaster story at all) – it is though, a stunning reversal for a group that just weeks ago couldn’t seem to do anything wrong.
But the losses weren’t limited just to the semi’s – we saw Disruptive Tech take a hit, down 1.9%, Software down 1%, Robotics & AI down 3.2%, Quantum down 0.9%.
Memory names though – advanced by 0.6% – which might make some sense – as the group is down 34% off the most recent high in just 4 weeks (think the Momo guys puking) and that put the group deep into bear market territory – when the ‘fundamental story’ hasn’t really changed – which suggests bargain hunters are beginning to dip their toes back in the water.
Of the 11 major sectors – only energy advanced – gaining 1.2% on the day – the other 10- sectors fell – with the communications sector taking the biggest hit – down 1.8%, Consumer Discretionary in second place down 1.6% – the other 8 sectors were down, but less than 1% suggesting this wasn’t the kind of indiscriminate, panic-driven selling that typically marks the beginning of a broad market correction. Instead, investors continue to reduce risk in the market’s highest-valued growth names while showing a greater willingness to hold positions in more defensive and value-oriented sectors. The Value trade only lost 0.5% while the Growth trade lost 1.5%.
One other hand the contra trades advanced….
The inverse ETFs—SH (Short S&P) added 1%, the DOG (Short Dow) up 0.7% while the PSQ (Short QQQ) added 1.5%. The triple short S&P – SPXS gained 3.1% while the VIXY (fear ETF) climbed by 5.3% as the volatility index surged by 12% – taking it up and thru the short and long term trendlines only to kiss the intermediate term trendline at 19.60.
Now remember…these are tactical, strategic trading vehicles, not long-term investments. They’re designed to provide short-term portfolio insurance during periods of market stress. Once the pressure eases, you close the hedge and redeploy the capital.
Ok – oil, as I pointed out, surged higher on Friday…. rising 4.5% to end the day at $82.50, now up 27% off the July 2nd low at $67.04 – putting it above all 3 trendlines – leaving it in the $82/$100 trading range. Over the weekend – the US continued to bomb military targets and communications networks as the conflict once again shows no signs of easing. Overnight oil tested $82 and held – this morning it is trading at $82.15.
Bonds caught a small bid – the TLT up 0.4% and the TLH up 0.25%. The 2-yr ended the day yielding 4.17%, the 10 yr at 4.55% and the 30 yr is at 5.07% – levels that remain an issue for the markets – again something that we have been discussing.
Recall the ‘danger zone’ conversation – when the 10 yr stays above 4.5% and the 30 yr stays above 5%, they raise borrowing costs, pressure stocks and offer investors an alternative. As long as yields remain elevated, they create a higher hurdle for stocks – especially the high-multiple ‘sexy’ growth names that have led this market. It’s another reason why investors are ‘selling the news’.
Gold continues to trade in the $4,000/$4,200 range. This morning it is flat at $4,018.
This week’s earnings calendar gives us a cross-section of the entire economy. We’ll get consumer spending through GM, AXP and AAL, industrial demand from 3M; Defense spending from NOC and LMT; the AI and technology from GOOG, TSLA, IBM and INTC, Wealth Management from SCHW and the Communications sector from T, TMUS and VZ. By the time the week is over, we’ll be exhausted but we should have a much clearer picture of the health of the U.S. economy and whether stocks are overpriced.
Eco data this week includes – Philly Fed Services Index, Kansas City Fed Manufacturing, S&P Manufacturing and Services PMI’s, New Home Sales and Building Permits.
European markets are all higher – as the chipmaker selloff takes a breath and investors consider the weekend Iran events.
US futures are up… Dow futures are up 163 pts, the S&P up 28 pts, the Nasdaq is up 202 pts, while the Russell is up 10 pts as we prepare for another week of excitement.
The S&P closed at 7457 down 76 pts after breaking below trendline support at 7454 to trade as low as 7431. This morning the tone is more positive, the Moonshot thing is not top of mind as investors await the action. The question now is – will we hold support or not? If not – then that opens the door to S&P 7300 Ish.
This week and next will be big weeks for earnings – so expect markets to be even more sensitive to the headlines. If we continue to see a ‘sell the news’ type of event – then expect markets to struggle – which will only cause more anxiety for some investors.
Remember…markets have a funny way of humbling investors – that’s exactly why we diversify. That’s exactly why we manage risk. And that’s exactly why investing is a marathon—not a sprint. Stay disciplined. Stay diversified. And don’t let the headlines force you into emotional decisions.
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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Calabrian Shrimp Scampi
This isn’t your grandmother’s scampi – this is what happens when the Southern Italians get involved. (Calabria is way down by the toe of the boot).
For this you need: 2 lbs. of large clean and deveined shrimp, Olive oil, lots of garlic cloves sliced thin, Calabrian Chili paste (that’s the key), crushed red pepper, dry white wine, 1 c of sliced cherry tomatoes, butter, fresh lemon juice, basil, parsley and s&p.
After it’s cooked – you need fresh burrata, thick slices of grilled Italian bread.
Start by seasoning the shrimp with s&p.
Heat the olive oil in a cast-iron skillet, Add the garlic – don’t let it brown.
Stir in the Calabrian chili paste and the red pepper flakes. Add the shrimp and cook until pink, then flip. Repeat.
Now pour in the white wine and scrape every bit of flavor off the bottom of the pan.
Add the tomatoes and let them soften for about three minutes. Finish it off with 2 tbsp. of butter and fresh lemon juice.
Next – Turn off the heat. Place the burrata right in the center of the pan. It will soften and get melty.
Add the chopped basil and parsley.
Serve immediately with thick slices of grilled bread.
Yum!
Buon Appetito