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Briefing.com Summary:
*The U.S. and Iran traded more military strikes over the weekend; Iran says the Strait of Hormuz is closed.
*South Korea's KOSPI plummeted 9%, setting a negative tone for the semiconductor stocks.
*Bank earnings, June CPI and PPI, and Fed Chair Warsh's semi-annual monetary policy report will be big news events this week.
The roller-coaster ride continues, both with respect to the U.S.-Iran conflict and the semiconductor trade. Each is on a downhill swing today, which isn't a comfortable situation for the stock market.
Currently, the S&P 500 futures are down 22 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 308 points and are trading 1.0% below fair value, and the Dow Jones Industrial Average futures are down 17 points and are trading fractionally above fair value.
The early struggle is being linked to rising oil prices, which have perked up on supply concerns that were triggered by the U.S. and Iran trading military strikes over the weekend and Iran's contention that it is closing the Strait of Hormuz.
It is familiar banter that the market has to accept, even if it does not respect it fully. Nevertheless, oil prices are up in response, with WTI crude futures up 3.9% to $74.22/bbl and Brent crude futures up 4.1% to $79.11/bbl. These are decent moves, yet they are not the kind of moves that imply real fear and loathing about the ongoing conflict.
If anything, the stock market might be more fearful about the crazy volatility of South Korea's KOSPI, which plummeted 9% on Monday, led by a record 15% decline in SK Hynix. The KOSPI's outsized moves in recent weeks are directly attributable to the volatility in its largest components—Samsung Electronics and SK Hynix—which are a blend of concentration risk, leveraged exposure, and concern that they can't sustain the hyper-growth they have been seeing much longer.
Alas, there is some bleeding in the semiconductor stocks here, including the new ADS listing for SK Hynix (SKHY), which is down 9% after gaining 13% on Friday. The VanEck Semiconductor ETF (SMH) is down 2.2%, even with Taiwan Semiconductor (TSM) giving the industry a dose of good news with its report that June revenues were up 68% year-over-year.
There is also some weakness among the mega-cap stocks, so one can easily extrapolate the basis for the underperformance of the Nasdaq 100 futures. In turn, that weakness is weighing on the broader market, which has ridden this roller-coaster many times before.
A subtle, but important, difference is that rising interest rates have added some new curves. The 10-yr note yield is up two basis points to 4.59%, and the 30-yr bond is up two basis points to 5.09%. These curves look manageable upon approach, but they extend into a tunnel where it is dark, making it unclear how they will turn.
The higher rates go, the more turbulent the turns will get, but if they come down, so will the market's anxiety level.
On that note, there is some added anxiety coming into this week, not only because of the geopolitical situation but also because this week is going to feature earnings reports from the banks, the June CPI and PPI reports, and Fed Chair Warsh's semi-annual monetary policy report to Congress.
Keep your seatbelts fastened. This thrill ride isn't over.
