Author: Wall Street Journal
Semiconductor stocks faced a large-scale sell-off, and the sustainability of the AI-driven market trend is being questioned by investors.
On Thursday, U.S. stock performance was mixed at the opening, with the Dow up 0.2%, the S&P 500 down 0.2%, and the Nasdaq down 0.4%. The semiconductor sector was under pressure, with the Philadelphia Semiconductor Index falling over 2%, and storage chip stocks generally declining, among which SanDisk fell about 5%, TSMC fell about 3%, and SK Hynix suffered a more severe drop of about 7%.
In individual stocks, Baidu rose about 4%, as the company is seeking to voluntarily convert to a dual primary listing on the Hong Kong Stock Exchange. AtaiBeckley surged about 32%, after Eli Lilly announced it would acquire the company for up to $3.8 billion, furthering its investment in new neuroscience therapies.
Geopolitically, the U.S.'s five consecutive days of airstrikes in Iran have escalated tensions, leading to a sharp decline in oil transportation through the Strait of Hormuz, resulting in rising oil prices. Brent crude oil increased over 1% to $85.9; spot gold fell 2% during the day, currently priced at $3,977.25 per ounce.
Matt Maley of Miller Tabak stated: “The future trend of chip stocks remains the most important issue in the stock market, they have indeed shown some obvious cracks, therefore a strong and sustainable rebound must occur soon, otherwise, it will pose a real threat to the stock market.”
- The Dow rose 0.2%, the S&P 500 fell 0.2%, and the Nasdaq fell 0.4%. The semiconductor sector was under pressure, with the Philadelphia Semiconductor Index falling over 2%, and storage chip stocks generally declining, among which SanDisk fell about 5%, TSMC fell about 3%, and SK Hynix suffered a more severe drop of about 7%.
- The Euro Stoxx 50 Index opened up 0.3%, the German DAX Index rose 0.1%, the UK FTSE 100 Index fell 0.5%, and the French CAC 40 Index opened flat. The Euro Stoxx 600 Index's decline widened to 0.5%.
- The Nikkei 225 Index closed down 2.8%, reporting 66,835.54 points. The Tokyo Stock Exchange's index closed down 1.5%, reporting 4,028.79 points. The South Korean Composite Index closed down 6.4%, reporting 6,820.21 points.
- The Japanese 10-year yield rose 1 basis point to 2.695%.
- Spot gold fell 2% during the day, currently priced at $3,977.25 per ounce. Spot silver experienced a daily decline of 4.0%, currently priced at $55.42 per ounce.
- Brent crude oil increased over 1% to $85.9.
U.S. Stock Market Opening: Three Major Indexes Mixed, Philadelphia Semiconductor Index Drops Over 2%
At the opening of the U.S. stock market, the Dow rose 0.2%, the S&P 500 fell 0.2%, and the Nasdaq fell 0.4%. The semiconductor sector was under pressure, with the Philadelphia Semiconductor Index dropping over 2%, and storage chip stocks generally declining, including SanDisk down about 5%, TSMC down about 3%, and SK Hynix down about 7%.
TSMC's Q2 performance did not effectively boost market sentiment. The focus of the market has shifted from revenue to gross margin: this quarter's gross margin was 67.7%, slightly exceeding the upper limit of guidance and mostly matching buyers' revised expectations (67%-69%), but did not meet some investors' aggressive estimate of 69%+. Additionally, the full-year revenue guidance was only "slightly above expectations," failing to alleviate market concerns about valuation and profit realization pace.
On the macro level, U.S. retail sales in June showed slight growth, but the decline in gas station revenues dragged total sales down, masking some consumer resilience among certain merchants. Meanwhile, global investors continue to digest the pressure of excessively high valuations in tech stocks, with the four major AI giants—Meta, Alphabet, etc.—projecting this year's capital expenditure to exceed $725 billion, heightening concerns about overbuilding in data centers and uncertainties in return cycles.
Leverage ETFs in South Korea Drive Volatility, Regulators Intervene
One of the triggers for this round of sell-off was the extreme volatility caused by leveraged ETF products in South Korea. These leveraged ETFs, which are linked to stocks of Samsung Electronics and SK Hynix, were only listed two months ago, amplifying the daily price fluctuations of the underlying stocks with two times leverage. Their daily rebalancing operations have been widely criticized by market participants for exacerbating price volatility.
In response to the situation, the chairman of the South Korean Financial Services Commission stated that authorities will soon announce regulatory measures regarding the related leveraged ETFs. This statement indicated that the regulators' concern about signs of overheating in the market is increasing.
John Woods, Chief Investment Officer and Head of Investment Solutions at Lombard Odier Asia, stated on Bloomberg TV: "I have long been concerned about this speculative frenzy in the South Korean retail investor market. Whenever I see any market showing excessive leverage, I get worried. From a general perspective, this rarely ends well."
Federal Reserve's Rate Hike Expectations Cool, Middle East Situation Disturbs Oil Market
On the macro level, U.S. producer price inflation data for June was below expectations, pushing U.S. Treasury yields down, and government bonds in Australia and New Zealand also rose accordingly. The U.S. dollar index remained basically flat after falling for two days, with the market generally betting that the Federal Reserve faces limited pressure for rate hikes.
The oil market is disturbed by the situation in the Middle East. The U.S. airstrikes on Iran boosted oil prices in the early session, but the upward trend could not be sustained. David Russell from TradeStation stated: "Energy was supportive in June, but if the Strait of Hormuz is not reopened soon, this favorable factor may soon become history." The market's concerns about the risk of energy supply disruptions, coupled with the optimism generated by soft inflation data, resulted in an overall cautious sentiment among investors.
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