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Briefing.com Summary:
*Semiconductor stocks and mega-cap stocks have been hit with a momentum unwind.
*South Korea's KOSPI plunged 10% with SK Hynix and Samsung leading the losses.
*Micron will release closely-watched earnings results and guidance after Wednesday's close
"Concentration risk" and "momentum unwind"... these are operative phrases in morning notes making the rounds today. They have been spawned by the 10% plunge in South Korea's KOSPI, which is dominated by SK Hynix and Samsung, both of which dropped more than 12% in Tuesday's trading without a direct news catalyst.
Those stocks were reportedly pressured by the potential for stepped-up regulation of leveraged ETFs. That idea, though, got thrown into a mix of talking points (and selling points) that included concerns that the stocks had gotten way ahead of themselves, that AI buildout efforts won't have the ROI that has been willfully granted in stock prices, and that higher interest rates will rein in valuation premiums for high-beta stocks.
Those talking points aren't unique to SK Hynix and Samsung, which is why Japan's Nikkei dropped 3.6% and why the equity futures market here has a negative orientation, with selling pressure concentrated in Nasdaq-listed names.
Currently, the S&P 500 futures are down 109 points and are trading 1.3% below fair value, the Nasdaq 100 futures are down 924 points and are trading 2.8% below fair value, and the Dow Jones Industrial Average futures are down 227 points and are trading 0.3% below fair value.
Notice that the Dow Jones Industrial Average futures are exhibiting relative strength. The same goes for European bourses. The STOXX Europe 600 is down only 0.8%. That relative strength is rooted in some rotational activity out of tech and into industrials.
A continued drop in oil prices (WTI -0.8% to $73.28/bbl; Brent -0.8% to $77.28/bbl) has aided that rotation, but clearly, the weight of losses in the semiconductor stocks and mega-cap stocks, including SpaceX (SPCX), is holding sway over the indices.
The VanEck Semiconductor ETF (SMH) is down 6.0%, and the Vanguard Mega-Cap Growth ETF (MGK) is down 2.1% ahead of the opening bell.
The label that this is a momentum unwind is fair, and some would claim it is long overdue. The question is, what will the market do with it? Let it unwind further or regroup to buy the dip? The answer may not fully avail itself until Micron (MU), which is down 9%, reports its quarterly results after the close on Wednesday and/or SpaceX (SPCX), which is down 1.9%, suffers engine failure and breaks its IPO price of $135.00 per share.
Market participants will be extra attentive to the price action in these stocks and many other stocks that have ridden a momentum bandwagon that is breaking down.
