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Last Updated: 07-Jul-26 09:09 ET | Archive
A trade of momentum attrition
Briefing.com Summary:
*Semiconductor stocks are under pressure following a preliminary Q2 report from Samsung Electronics
*The Q2 earnings reporting period is near and will serve as a fulcrum for this range-bound market.
*The May trade deficit showed a large widening amid more demand for imports than exports.
The stock market continues to do the rotation dance. Last week was about a rotation out of semiconductor stocks and into other parts of the market. Yesterday, there was a rotation back into the semiconductor stocks, while the rest of the market languished.
Today, the switch has been flipped back to a rotation out of semiconductor stocks and into the rest of the market. The result is a market that continues to trade sideways but faithfully holds near its all-time highs.
The inflection point for this move, however, is on the near horizon. That would be the Q2 earnings reporting period, which will start with a trickle next week and then start flowing in the following weeks.
What companies say and how the market reacts to what they say will be the fulcrum that drives a breakout or a breakdown from this sideways range. To be fair, it is not impossible that the reporting period drives more of this churning behavior, characterized by the ebb and flow between the tech stocks and the rest of the market.
The pre-open action today is giving participants a taste of the latter possibility. Samsung Electronics (SSNLF) announced a preliminary Q2 operating profit that would be up more than 1,800% year-over-year, but its revenue was a smidgen below some very lofty expectations. Its stock declined nearly 7% in South Korean trading, laying the foundation for the initial weakness seen here in the semiconductor stocks.
The concern for investors, reportedly, is that this pace of phenomenal growth won't be sustained; therefore, there is some angst that the "easy money" has been made.
Currently, the S&P 500 futures are down 16 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 321 points and are trading 1.0% below fair value, and the Dow Jones Industrial Average futures are up 188 points and are trading 0.5% above fair value.
Keeping things in perspective, this is not a fear-based trade this morning. It is simply a trade of attrition in terms of the momentum for the semiconductor stocks, which are no longer seeing straight-line appreciation. In turn, that attrition has become a basis for the accumulation of other stocks outside the AI trade.
The Nasdaq 100 futures might not look so hot this morning, but the dynamic of a bull market remains intact with the rotation of money within the stock market and not out of it altogether.
Elsewhere, oil prices (WTI +1.1% to $69.30/bbl) are firmer this morning on reports that Iran fired two missiles at ships navigating through the Strait of Hormuz, and interest rates are also firmer. The 2-yr note yield is up one basis point to 4.13%, and the 10-yr note yield is up one basis point to 4.49% ahead of today's $58 billion 3-yr note auction, the results of which will be announced at 1:00 p.m. ET.
The lone economic release today at 8:30 a.m. ET was the May Trade Balance report. It was out of balance, per usual.
The trade deficit widened to $77.6 billion in May (Briefing.com consensus: -$78.8 billion) following an upwardly revised $54.6 billion deficit (from -$55.9 billion) in April. The widening deficit was the result of exports being $10.5 billion less than April exports and imports being $12.5 billion more than April imports.
The key takeaway from the report is that it reflected stronger demand for goods in the U.S. versus elsewhere, evidenced by the wide gap between exports and imports in May.
The market showed little reaction to the report, keeping its eyes focused on the behavior of the semiconductor stocks, the broader market, interest rates, and the NATO meeting in Turkey that is being attended by President Trump.
