Key insights
- The AI trade and semiconductor stocks experienced a significant sell-off, with the tech sector and semiconductor index down sharply. This follows a period of strong gains, suggesting profit-taking and potential for further choppiness or a downward move in the near term. While the sell-off was concentrated, it highlights the speculative nature and potential volatility within these high-growth areas.
US stock futures (ES=F, NQ=F, YM=F) attempt to recover from last Friday's sell-off, which saw the Nasdaq Composite (^IXIC) sink by over 4%,
Morning Brief Host Julie Hyman and Barron's Investor Circle Newsletter editor Josh Schafer examine how last week's sell-off impacted key components of the AI trade, such as semiconductor stocks.
The thing that continues to be the most important is the AI trade. And the AI trade, as we also know last week, was not working.
Yeah.
Um, kind of all of a sudden, but kind of not surprisingly at the same time. I mean, we've had a bunch of people saying like, you know, you had Jonathan Krensky, for example, over at BTIG saying things were getting overbought, right? Um, and then it seemed like Broadcom was sort of the catalyst-ish or excuse, depending on how you look at it, for the sell-off, but everything maybe is okay again this morning.
What was interesting to me just sort of going through some of the stats was how narrow the sell-off really was. So you look on a sector basis, you have your 11 sectors in the S&P 500. The only one that actually underperformed the S&P was tech. Tech fell almost XLK was down almost 7% on Friday, got absolutely whacked. And so did the semiconductor index. Semis down 10%.
Yeah.
But you zoom out, semis are still up 80% this year. They were up 100% for the year when the S&P 500 hit its last record last Wednesday. So, it just sort of makes a little bit of sense that at some point people are going to take profits. You're not just going to sit in a trade that keeps going up just to sit in it. At some point, and once you get a little bit of de-risking, you're going to get a lot of de-risking, right? You're going to have a lot of triggers start to go off there. So, I think when you think about the near-term trade, it probably does make sense if you have a little bit more chop and maybe lower is your next direction if we're talking about the next 100 points on the S&P at this point. I think it would make sense that you maybe go a little bit lower from here. I also think it's a catalyst issue at this point.
What are your two big catalysts this week? You have a massive potential volatility interesting event with the SpaceX IPO, and you have another CPI report that isn't supposed to be great. So what makes people come into the market and buy tech stocks this week? I don't really know, but it doesn't seem like there's a lot at least on the schedule.
It's because Jensen told them they should.
Yeah.
Maybe that's what it is. Yeah. Jensen Wang, um, is in Soul and where we saw a steep, steep sell-off overnight in the Cospi and in stocks like SK Hynix even after Nvidia said it was sort of it, um, intensifying its partnership with SK Hynix. Um, but he was asked about this and he says, like, he said, you should be very happy because now you can buy it a discount, um, in those tech stocks. Um, I mean, it's not surprising that he's going to say this. He's also he his company itself is also an investor in a lot of these tech stocks, right? Um, you know, so, I I don't think we can point to that as like the spark, but again, it's always, you know, you're always trying to figure out in this market, is it a catalyst or is it an excuse?