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Last Updated: 17-Jul-26 09:10 ET | Archive
Stock market is having a Moonshot moment
Briefing.com Summary:
*The release of a new AI model by Chinese company Moonshot has caused some upset in global equity markets.
*Netflix (NFLX) is down 11% after issuing disappointing Q3 guidance.
*June housing starts were strong. The problem is that single-unit starts were not.
SpaceX (SPCX) had to delay the launch of one of its rockets since some of the engines didn't start. Sounds like a good decision to us. Be that as it may, the stock market is amiss this morning because of a Moonshot.
Specifically, Chinese company Moonshot AI released a new model (Kimi K3) that is reportedly quite capable of competing with AI models from the likes of OpenAI and Anthropic and is potentially a lower-cost alternative for end users.
The concern, according to reporting by Bloomberg, is that Kimi K3's success will encourage U.S. companies to use lower-cost Chinese models more, which could then mean reduced capex spend on the AI buildout as ROI factors come into sharper focus. That view, naturally, has broadsided the semiconductor stocks and other momentum stocks that have been running on the AI trade.
The hit isn't just local. It is global. Japan's Nikkei dropped 4.0%, China's Shanghai Composite fell 3.0%, and let's just say that it was probably good, for today anyway, that South Korea's Kospi was closed for a holiday.
Currently, the S&P 500 futures are down 79 points and are trading 1.2% below fair value, the Nasdaq 100 futures are down 591 points and are trading 2.0% below fair value, and the Dow Jones Industrial Average futures are down 483 points and are trading 0.9% below fair value.
The market is also dealing with some other space junk around this Moonshot. For starters, SpaceX is trading at $125.44 in pre-market action, falling further below its $135.00 IPO price; Netflix (NFLX) is down 11% after issuing disappointing guidance; Bloomberg is also reporting that insider selling is transpiring at the second-fastest pace in over 20 years; and WTI crude prices ($81.02, +2.07, +2.6%) are bubbling up as military action between the U.S. and Iran heats up.
It isn't a pretty picture right now. An unwinding of a momentum trade never is. That reality has the semiconductor stocks in the hot seat. The Philadelphia Semiconductor Index is down 8.5% this week alone and down 16.7% since the second quarter; however, it is down 19% from the all-time high it reached on June 22. With today's opening decline, it will meet the technical definition of being in a bear market (20%+ decline from prior high).
The stock market overall is a long way from a bear market, which is a good thing, but it is set for a lower open and a bit of a nervous open. We say as much, knowing that Treasury yields appear to be more responsive this morning to the equity market fallout than the jump in oil prices.
The 2-yr note yield is down two basis points to 4.14%, and the 10-yr note yield is down four basis points to 4.53%. That is up a bit from earlier, as there was an uptick in yields following this morning's economic data.
Housing starts increased 19.0% month-over-month in June to a seasonally adjusted annual rate of 1.427 million units (Briefing.com consensus: 1.328 million), paced by a 76% increase in multi-unit starts. Building permits--a leading indicator--declined 3.0% month-over-month to a seasonally adjusted annual rate of 1.367 million (Briefing.com consensus: 1.403 million), with single-unit permits down 2.4%.
The key takeaway from the report is that there wasn't any growth in single-unit starts or permits, which isn't a positive read for a housing market pinched by affordability issues.
Separately, import prices were up 0.3% month-over-month in June and up 7.1% year-over-year. Excluding fuel, they were up 0.4% month-over-month and up 4.2% year-over-year. Export prices fell 0.6% month-over-month but were up 10.2% year-over-year. Excluding agricultural products, export prices were down 0.7% month-over-month and were up 10.6% year-over-year.
The key takeaway is that the outsized year-over-year increases for import and export prices goes to show that there is ample inflation still to contend with here and abroad.
