Author: Wall Street Insights
Semiconductor stocks face a large-scale sell-off, with investors questioning the sustainability of the AI-driven rally.
On the geopolitical front, five consecutive days of US attacks on Iran have escalated tensions, causing a sharp drop in oil traffic through the Strait of Hormuz and pushing oil prices higher. Brent crude rose over 1% to $85.9; spot gold fell 2% intraday, now at $3,977.25 per ounce.
Matt Maley of Miller Tabak said: "The future path of chip stocks remains the most important question for the stock market, they have indeed shown some significant cracks, so a strong and sustainable rebound must appear soon, otherwise it will pose a real threat to the stock market."
- The Dow rose 0.2%, the S&P 500 fell 0.2%, and the Nasdaq fell 0.4%. The semiconductor sector was under pressure, with the Philadelphia Semiconductor Index falling over 2%. Memory chip stocks fell broadly, with SanDisk down about 5%, TSMC down about 3%, and SK Hynix plunging about 7%.
- Europe's Stoxx 50 Index opened 0.3% higher, Germany's DAX rose 0.1%, the UK's FTSE 100 fell 0.5%, and France's CAC 40 opened flat. The Euro Stoxx 600 Index's decline widened to 0.5%.
- Japan's Nikkei 225 closed down 2.8% at 66,835.54. Japan's Topix Index closed down 1.5% at 4,028.79. South Korea's KOSPI closed down 6.4% at 6,820.21.
- Japan's 10-year yield rose 1 basis point to 2.695%.
- Spot gold fell 2% intraday, now at $3,977.25 per ounce. Spot silver fell 4.0% intraday to $55.42 per ounce.
- Brent crude rose over 1% to $85.9.
One of the triggers for this sell-off was the sharp volatility caused by leveraged ETF products in the South Korean domestic market. These leveraged ETFs, linked to Samsung Electronics and SK Hynix stocks and launched just two months ago, magnify the daily price movements of the underlying stocks by two times. Their daily rebalancing operations are widely blamed by market participants for exacerbating price swings.
In response to the situation, the chairman of South Korea's Financial Services Commission stated that authorities would soon announce regulatory measures for the related leveraged ETFs. This statement indicates that regulators' concern about signs of market overheating is rising.
John Woods, Asia Chief Investment Officer and Head of Investment Solutions at Lombard Odier, told Bloomberg TV: "I have long been deeply concerned about this kind of speculative frenzy in South Korea's retail market. Whenever I see excessive leverage in any market, I get worried. As a general rule, it usually doesn't end well."
On the macroeconomic front, US June producer price inflation data came in lower than expected, pushing US Treasury yields lower, with Australian and New Zealand government bonds also rising. The US dollar index was largely flat after falling for two days, as the market widely bets that the Fed faces limited pressure to raise rates.
The oil market was disturbed by the Middle East situation. New US airstrikes on Iran boosted early oil prices, but the gains failed to hold. David Russell of TradeStation said: "Energy provided support in June, but if the Strait of Hormuz does not reopen soon, this positive factor could quickly become history." Worries about energy supply disruption risks counterbalanced the optimism from softening inflation data, keeping overall investor sentiment cautious.
