US stocks are experiencing a rebound as bargain-hunting funds enter the market, with equities rising on reignited enthusiasm for artificial intelligence and expectations that a robust economy will continue to fuel corporate growth in the United States.
Led by technology stocks, the S&P 500 index extended its rebound from a war-induced low. The Nasdaq 100 index gained approximately 2%, with the chipmaker sector on track for its best day in over a year. The Philadelphia Semiconductor Index surged more than 6% at one point.
According to reports, the Israeli Prime Minister stated in a televised address that the current strikes on Iran have been "paused," warning that Israel would respond with force if Iran resumes attacks. The easing of Middle East tensions, which narrowed oil price gains, also boosted market sentiment.
Simultaneously, the latest survey from the New York Fed showed a worsening outlook for job seekers, a slight decline in inflation expectations, and the weakest household financial outlook in four years. This survey somewhat alleviated the market impact from last week's stronger-than-expected non-farm payrolls report.
Several institutions maintain bullish stances, citing strong AI fundamentals. Regarding last Friday's sell-off in US stocks attributed to positioning adjustments, a Morgan Stanley strategist views it as a "healthy reset." He remains optimistic, citing resilient corporate earnings growth and economic data.
He stated that it is uncommon for the market to sustain such a rapid, one-sided rally from the March lows. A pullback was almost inevitable and, in fact, beneficial if this bull market is to persist through year-end. His baseline scenario remains the S&P 500 reaching 8,000 points by year-end.
His optimism is echoed by a Citigroup strategist, who raised the year-end target for the S&P 500 to 8,100 from 7,700 points following "significant" upward revisions to earnings expectations.
A UBS Global Wealth Management executive noted that investors are not expected to lose confidence in the AI development outlook. Despite recent pressure on tech stocks due to market concerns about meeting high expectations, corporate fundamentals remain strong.
He also pointed out that the market continues to overestimate the "hawkishness" of major central banks. He believes the risk of the Federal Reserve raising interest rates remains low. Although job growth remains strong, slowing wage growth may reassure policymakers.
Following last Friday's strong non-farm payrolls report, market focus has shifted back to inflation data. The May Consumer Price Index, scheduled for release on Wednesday, is expected to show a year-over-year increase of 4.2%, which would be the highest pace in over three years. However, the monthly increase in core CPI is expected to cool slightly, potentially sending a positive signal to Fed officials.
According to one market observer, it remains to be seen whether the market can maintain its resilience as investors digest inflation data and a series of high-profile IPOs and stock offerings. He stated this would be a key test of whether investors are rotating funds into new opportunities or becoming more cautious about risk assets.
Chip stock rebound triggers large-scale hedging by traders. Within the chip sector, trader behavior exhibits a pattern of "selective long positions on individual stocks, while shorting the overall sector."
On Monday morning, put option volume for the VanEck Semiconductor ETF exceeded call option volume by more than twofold, with over half of the total premium related to puts. Among these, over 10% of the approximately $217 million in premium traded was concentrated in puts with a $550 strike price expiring on August 21st. This strike price is about 7% below current levels, indicating traders remain skeptical of the ETF's more than 5% rebound on the day.
Despite the overall bearish sector sentiment, traders are still actively betting on some potential winners. For example, in Marvell Technology (MRVL) options trading, call volume was triple that of puts, accounting for over 80% of the total premium. The company is set to join the S&P 500 index on June 22nd.
Meanwhile, news catalysts have fueled enthusiasm for Intel (INTC) shares. Reports indicate Alphabet has commissioned Intel to produce 3 million of its self-developed AI chips.
On Monday morning, Intel option volume was nearly double the daily average, with over 70% being calls. The number of calls traded at the ask price or higher was nearly triple that of puts, and over 60% of these were contracts with a strike price more than 5% above the current stock price, showing strong investor expectations for further gains.
Emerging AI chip company Cerebras is also seeing strong demand, with option premium traded exceeding $50 million, overwhelmingly concentrated in calls. The top ten most active contracts by premium were all calls, with over 60% having strike prices more than 5% above the current share price, indicating high market speculative fervor.
A co-founder of market research firm Bespoke stated that even for a volatile index like the Philadelphia Semiconductor Index, the past two weeks have been quite wild. Following the previous sharp rally and recent steep decline, he does not believe it will immediately resume a significant downtrend. He suggested there could be more "fireworks" in the market leading up to the July 4th US Independence Day holiday.
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