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Briefing.com Summary:
*Memory and storage stocks are back under some selling pressure.
*Lower oil prices and lower Treasury yields have been supports for the broader market during this week's tech retreat.
*Price action is likely to be choppy going into the Q2 earnings reporting period, as worries about demand destruction fester.
Yesterday was a good day for the semiconductor sector, courtesy mostly of Micron (MU) and the memory/storage stocks. It wasn't such a great day for many of the mega-cap stocks and hyperscalers, courtesy mostly of Micron and the memory/storage companies that are clearly enjoying tremendous pricing power due to capacity constraints.
This morning, it isn't looking too swell for either of these camps. Concerns about demand destruction (stemming from higher prices for consumers) are a key driver, along with some angst that the near-term surge in demand for memory to build out AI data centers risks a large ramp in building new capacity to meet that demand, which might not be as strong in the future as it is today.
Samsung and SK Hynix are reportedly about to announce investment plans that run into the hundreds of billions of dollars. Bloomberg, citing Maeil Business Newspaper, is reporting that Samsung could announce a $646 billion capex plan for the next decade as early as next week.
It is an investing conundrum, as it is unclear just how much of that future demand has been pulled forward into stock prices today. Moreover, it warrants a belief that there won't be any factor causing a demand slowdown in the interim.
Burgeoning doubts about the viability of this condition have triggered some increased volatility and rebalancing activity at the end of this remarkable quarter. That volatility is titled to the downside this morning, with many of the semiconductor stocks, including Micron (MU) and SanDisk (SNDK), getting caught up in the maelstrom.
Losses for those stocks and others have put some added pressure on the Nasdaq 100 futures, which are down 453 points and are trading 1.4% below fair value. The S&P 500 futures are down 45 points and are trading 0.5% below fair value, while the Dow Jones Industrial Average futures are down 98 points but trading fractionally above fair value, signaling for an ongoing rotation out of tech and into other parts of the market.
That rotation has been plain to see this week. The S&P 500 information technology sector is down 4.4% week-to-date, the Vanguard Mega-Cap Growth ETF (MGK) is down 4.9%, and the Philadelphia Semiconductor Index is down 2.8%. The equal-weighted S&P 500, however, is up 0.9%, the Russell 2000 is up 0.9%, and the S&P 500 real estate, industrials, health care, and utilities sectors are all up more than 2.0%.
It has been some topsy-turvy action at the index level, but it ain't nothing compared to South Korea's KOSPI Index, which was up 0.7% on Monday, down 10.0% on Tuesday, up 3.3% on Wednesday, up 5.4% on Thursday, and down 5.8% on Friday.
That price action was tied heavily to the price action in Samsung and SK Hynix.
On a better note, the price action in crude oil futures and Treasuries has been a support factor for the rotation activity in the U.S. WTI crude futures are down 8.4% for the week to $69.47/bbl, and the 10-yr note yield has dropped six basis points to 4.40%.
Those moves have taken some sting out of the tech sector's weakness, which has been overdue. The question now is, will that weakness drive a crack in the broader market, or is it just a temporary reset for a white-hot sector?
With worries about demand destruction stirring now, as companies like Apple (AAPL) and Microsoft (MSFT) are raising prices to try to offset the surge in memory/storage costs, the market is apt to be more choppy heading into the Q2 earnings reporting period that begins in about three weeks.
