To The Moon

After the recent gains, on Wednesday (17 July), we saw S&P 500 losing -1.4%, Russell 2000 lost -1.1% and NASDAQ have the greatest loss at -2.8%, these has showed us that some consolidation happen.

Influential winners for 2024 till now like mega cap stocks and chipmakers are instead giving significant declines on Wednesday and this has cause some impact on the broader market.

Significant Declines From Nvidia, Meta, Apple and Broadcom

Semiconductor stocks like Broadcom (AVGO) has the largest decline with -7.9% loss, followed by Nvidia (NVDA) with -6.6%. The next name to suffer is the social media platform, Meta Platforms (META) losing -5.7% and another favourite name Apple (AAPL) lost -2.5%.

The Vanguard Mega Cap Growth ETF (MGK) declined 2.8% and the PHLX Semiconductor Index (SOX) slid 6.8%.

Following a Bloomberg report that the Biden Administration is discussing tightening export restrictions to China even further, semiconductor stocks react negative to it.

Healthcare and Bank Stocks Outperformed

Following Johnson & Johnson (JNJ Q2 earnings report, their stock price gained +3.7%. Similarly, $UnitedHealth(UNH)$ was up +4.5% after Jefferies upgraded UNH from Hold to Buy after UNH sharp earnings-related gain on Tuesday (16 July). These help the price-weighed Dow Jones Industrial Average closed 0.6% higher.

We also saw bank stocks outperformed the rest of the market. The SPDR S&P Regional Bank ETF (KRE) jumped 1.2% and the SPDR S&P Bank ETF (KBE) closed 0.9% higher. The S&P 500 financial sector was among the top performers on Wednesday (17 July), logging a 0.85% gain.

The activity in mega caps and chipmakers led the information technology to be down by -3.72%) and communication services (-2.09%) sectors sharply lower.

Note Yield Declined

Following Fed’s July Beige Book, which showed that economic activity maintained a slight to modest pace of growth in a majority of Districts this reporting cycle, we do not see much reaction from the equity and bond markets.

After the solid $13 billion 20-yr bond reopening, the 2-year note yield went down by one basis point to 4.45% while the 10-year note yield was down two basis points to 4.168%.

Not Much Encouragement from Housing Inventory and Manufacturing

Yesterday (17 July) the Weekly MBA Mortgage Applications Index was reported to come in at 3.9% while previous figure stood at -0.2%. June Housing Starts was at 1.353 mln with consensus at 1.310 mln while the previous was revised to 1.314 mln from 1.277 mln. June Building Permits was 1.446 mln with consensus at 1.391 mln while previous revised to 1.399 mln from 1.386 mln.

The data release is suggesting that it might have been better than expected relative to consensus estimates, it was not a strong report nor a particularly encouraging report for an inventory-constrained housing market in need of lower-priced, single-family homes.

Next we saw June Industrial Production came in higher at 0.6% than the consensus of 0.3% while previous was revised to 0.9% from 0.7%. June Capacity Utilization was also higher at 78.8% than consensus at 78.6% while previous was revised to 78.3% from 78.2%.

The data we saw suggest that there was continued increase in manufacturing output.

Stocks To Watch

Semiconductor stocks, including ASML, experienced a significant downturn after reports surfaced that the U.S. government may impose stricter export controls on the industry. ASML's second-quarter results showed stronger-than-expected performance, with net bookings surging by about 54% sequentially to €5.57B. However, the company's third-quarter outlook fell below Wall Street expectations, contributing to the sector's decline.

Google (GOOG, GOOGL) and $Microsoft(MSFT)$ were reportedly providing Chinese companies access to $NVIDIA Corp(NVDA)$ high-end AI chips through data centers, circumventing U.S. export controls. The Biden Administration is considering new regulations to close this loophole, which could impact the tech giants' operations and revenue streams.

$United Continental(UAL)$ posted Q2 Non-GAAP EPS of $4.14, beating estimates by $0.21, with revenue of $14.99B. Despite the positive earnings, shares dropped by 4.47%, possibly due to concerns over future capacity and cost management.

Even though there are concerns over future capacity and cost management, UNH still look like a potential buy from the technical. With positive gain in the 24-hour trading at time of this writing, we should be seeing the investors coming back from this healthcare stock, especially we are currently facing tech stock rotation which might last for a while.

$Johnson & Johnson(JNJ)$ better-than-expected Q2 financials boosted several large-cap pharma stocks, including Bristol-Myers Squibb (BMY, Financial), AbbVie (ABBV), Viatris (VTRS), and Takeda Pharmaceutical (TAK). The gains were primarily driven by J&J's strong performance in its pharmaceutical segment.

With the tech sector rotation and healthcare stock like JNJ performing better-than-expected in its earnings, we are seeing promising signals from MACD and KDJ, upside can be seen.

So I personally would feel that this healthcare stock could be potentially used as defensive against the market volatility brought by the tech sector rotation.

Summary

As we have seen the real impact from tech sector rotation, Nasdaq was down more than 2%, and good performance from healthcare stocks, some from significant earnings, should be potentially used in our strategy as defensive against the volatile situation.

Appreciate if you could share your thoughts in the comment section whether you think market would experience another day of volatility because of the rotation.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.