Global stock markets have retreated from record highs, with the semiconductor sector serving as a primary drag. Meanwhile, gold has strengthened as expectations for a Federal Reserve interest rate cut increase.
Memory chip stocks have become the epicenter of this decline. SanDisk fell 8% in after-hours trading, while Western Digital plummeted 12%, with both companies having just released earnings reports. South Korea's Kospi index dropped 4.5%, with SK hynix plunging 10%. Samsung Electronics also came under pressure, and Japan's Kioxia declined 9%.
This phase of correction in tech stocks reflects investors reassessing the sustainability of the AI trade. AI-related stocks had just recovered from a massive sell-off last month, but lingering doubts about the durability of AI capital expenditure have kept market sentiment fragile. However, S&P 500 futures and European stock index futures both edged higher, indicating that the downward momentum in the market is being contained.
Where to focus
The Kospi fell 4.5%, with SK hynix dropping 10%. Japan's Nikkei 225 declined 1.6%, and the Topix index fell 0.4%. Kioxia slid 9%. The yen was nearly unchanged at 157.74 per dollar. The Korean won rose 0.7% to 1,414.55 per dollar, its highest level since October, as exporters sold dollars. The US 10-year Treasury yield held steady at 4.61%. West Texas Intermediate crude oil fell 0.6% to $74.78 per barrel, while Brent crude dropped 0.4% to around $79.10 per barrel. Spot gold climbed 0.4% to $4,261.71 per ounce, while Bitcoin slipped 0.2% to $64,634.34.
Primary reasons for the decline
The market reaction triggered by earnings reports from SanDisk and Western Digital has once again highlighted the fragility of current valuations in the semiconductor sector. The Bloomberg MSCI Global Semiconductor Index had previously fallen more than 20% from its June high, and despite a subsequent rebound of about 15%, investors have clearly not yet regained confidence. Gary Tan, a portfolio manager at Allspring Global Investments, said, "Investors are increasingly asking what new catalysts are needed to continue holding Asian memory chip stocks." Stephen Wu, managing partner at Carthage Capital, also noted, "If the current sector rotation persists, indices with high semiconductor concentration, like South Korea's, where two memory chip stocks account for more than 50% of the index weight, will be the most sensitive global benchmarks to shifts in tech leadership."
Hedge fund turbulence and AI narrative uncertainty
Last week, Leopold Aschenbrenner's hedge fund, Situational Awareness, nearly collapsed after facing margin calls from multiple Wall Street lenders, eventually reaching an agreement with Ken Griffin's Citadel to sell most of its public stock holdings. Rajeev de Mello, a global macro portfolio manager at Gama Asset Management, said this "bailout" arrangement provided short-term support for tech stocks but did not resolve the core issue. "Until a clearer answer emerges on the prospect of capital expenditure, the sector is likely to remain highly volatile."
Gold strengthens, oil decline opens up monetary policy space
Gold rose 0.4% to $4,260 per ounce, its highest level since June. Market expectations of an increased likelihood of the Strait of Hormuz reopening could push oil prices lower, thereby reducing pressure on the Federal Reserve to raise interest rates and enhancing the relative appeal of non-yielding assets like gold. Brent crude oil fell 0.4% to around $79.10 per barrel, following Iran's announcement of a proposed shipping route agreement with Oman via the Strait of Hormuz, which is seen as a potential step toward reopening the waterway. Federal Reserve Governor Lisa Cook, speaking at an event in Alaska, warned that the longer inflation deviates from target, the harder it will be to bring it back. The US 10-year Treasury yield remained at 4.61%. The Bloomberg Dollar Index extended its decline from the previous session. Investors are now awaiting more clues: Japan's SoftBank Group is set to report earnings later today, which could provide another lens through which to examine the AI investment theme. Additionally, over $101 billion worth of SpaceX stock is about to be offered for trading, also drawing market attention.
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