The technology sector experienced significant acceleration in its correction Thursday, with semiconductors leading the pullback at 4.8% as reported by Investing.com India. This follows yesterday's whipsaw session where opening losses were largely erased by the end of the day, but today's decline shows no pullback from a strong Dow, which closed up 875 points yesterday. According to Investing.com India, it appears to be a case of profit-taking in the semiconductors, which are now down 0.5% in the trailing week despite remaining up 14.4% in a month and +65.9% year-to-date. The Dow opened this morning at a new all-time high of 51,660 and is only down 171 points (0.3%) on the day, highlighting the divergence between tech and broader market performance.
Higher interest rates are hitting the market today, with the US 10-year yield up 6bps to 4.54% and the 2-year yield a whopping 10bps to 4.15%, as reported by Investing.com India. The increase is due to very strong job data, lowering expectations for a Fed rate cut. This contrasts with previous sessions where oil prices were actually modestly lower, making it clear that it's due to very strong job data, lowering expectations for a Fed rate cut. The buy-the-dip investors haven't stepped up yet, but the trend remains positive with hopes for a resolution in the near term with Iran remaining.
The technology sector experienced significant volatility Thursday, with technology stocks leading declines despite broader market gains. According to multiple reports, Broadcom (AVGO) tumbled more than 12% despite reporting earnings that topped analyst projections, while Micron Technology (MU) and Advanced Micro Devices (AMD) were also among the biggest decliners in the S&P 500. The pullback comes after a big run-up in the stocks to record highs in recent weeks, with many of Thursday's laggards including Broadcom, Micron, Arm (ARM), and AMD reaching fresh highs earlier in the week. As reported by UBS analysts, "Any near-term volatility should not come as a surprise after the recent strong rally," while maintaining expectations for "solid AI fundamentals" to drive future gains. However, momentum dispersion has reached its widest level since 1990, signaling potential rotation away from concentrated AI positions toward previously overlooked sectors. According to CFRA's AI Bubble Meter, the risk-reward has moderated from 'better' to 'good', implying a more limited upside of 0-5% over the next 3-6 months.
Major damage is being seen in alternative assets, with gold down 2.5%, silver down 6.2%, and copper down 3.2%, as reported by Investing.com India. Crypto has been getting hammered, with Bitcoin now down below $61K, down over 51% from its high of last September, down 25% in a month, and down 17.6% in the last week. Ethereum is down 67% from its high, down 32.3% in a month. This broad-based selloff across alternative assets, combined with the tech correction, suggests a more comprehensive risk-off sentiment beyond just semiconductor-specific factors.
Despite current volatility, the fundamental outlook for technology remains positive, though risks from technical factors are emerging. According to Investing.com India, risks arise from technical factors including expectations for blockbuster IPOs like SpaceX, Anthropic and OpenAI potentially leading to portfolio rebalancing and selling pressure. However, momentum-driven rallies can have legs, with historically the one-year forward returns following a 100-day stretch with at least 20 all-time highs showing no different from returns on any given day. The MSCI USA Momentum benchmark has gained 43% since the S&P 500 market low on March 30, marking a rebound more than double that of the index. Momentum dispersion at its widest since 1990 suggests the summer calm could open doors for overlooked sectors, with potential catalysts including a true reopening of the Strait of Hormuz or de-escalation in the Middle East that could compress oil price risk premiums and support consumer-facing sectors. US forward earnings estimates have been upgraded across sectors in Q2, providing a strong fundamental backdrop to the equity rally. However, extremely stretched investor positioning in US equities raises the risk of a 5-10% pullback, with analysts preferring diversification from AI-enablers like semiconductors to AI adopters such as internet and software.
