Sell hard! Technology stocks plummeted across the board, Goldman Sachs made a big statement! A major test for U.S. stocks is coming
"AI trading" in U.S. stocks is about to face a major test. U.S. AI technology stocks suffered a violent sell-off this week. The Nasdaq fell 2.9% for the week, and the Philadelphia Semiconductor Index fell nearly 10% for the week. The latest point has retreated 20% from the record high. According to data from the Morgan Stanley Quantitative and Derivatives Strategy Team (MS QDS), the U.S. stock technology momentum factor (TMT MoMo) has retraced for 17 trading days and has fallen 40% from its peak, setting a record for the fastest and deepest retracement in history. Mark Wilson, a partner at Goldman Sachs and head of EMEA hedge fund business, said the unwinding process of the momentum factor may be "nearly complete." Looking forward to next week, the U.S. stock earnings season will enter its peak period. Technology giants such as Google, Intel, Tesla, IBM, and Texas Instruments will intensively announce their results. The AI investment logic of U.S. stocks will face a major test. Some analysts have warned that if Google releases any signal to reduce its AI investment budget, it may have a serious impact on AI transactions. The most violent sell-off in history Recently, U.S. stock technology momentum trading has been experiencing the most severe turmoil in history. According to the latest data from MS QDS, TMT MoMo has fallen 40% from its peak in just 17 trading days, which is the fastest and deepest sell-off since data is available. Among them, memory chip stocks accounted for about two-thirds of the overall decline, and broader AI benefit stocks also fell about 24% from their high point. Take the Philadelphia Semiconductor Index as an example. As of Friday's close, the index fell 1.63% to 11,673.89 points, a cumulative decline of 20.3% from the historical high in June. It is worth noting that there is a clear differentiation within the technology sector of the US stock market: semiconductor, storage, and optical communication concept stocks have fallen sharply, MAG7 (the seven largest US stocks) have remained flat overall, and software stocks have bucked the trend and strengthened, indicating that the re-pricing of funds within the sector is quietly beginning. Mark Wilson, a partner at Goldman Sachs and head of EMEA hedge fund business, pointed out that the speed and depth of this round of selling are rare in history and reflect more structural factors such as positions, leverage, and congestion. Mark Wilson believes that the unwinding process of this round of momentum factors may be "nearly over", but there is a lack of catalysts that can immediately promote a market reversal in the short term. Nomura Securities strategist Naka Matsuzawa pointed out in the latest report that the current market mainly evaluates potential turning points in the AI investment cycle around four scenarios: First, overheating of AI investment compresses the cash flow of ultra-large-scale cloud manufacturers, which in turn leads to a slowdown in investment; second, high memory prices push up investment costs, triggering a contraction in AI spending; third, rising raw material costs intensify inflationary pressure, prompting the central bank to turn to a hawkish stance; fourth, high memory prices trigger overheating of semiconductor investment, which in turn leads to a fall in memory prices. Matsuzawa said that it is this multi-path uncertainty that makes U.S. stock investors doubtful and wait-and-see. The test of US stock earnings season In the coming period, the U.S. stock earnings season will enter its peak period. According to market statistics, more than 80 S&P 500 index constituent stocks will announce their quarterly results next week, and U.S. technology stocks will usher in the most critical trading week. The market hopes to once again confirm the financing capabilities of large U.S. technology companies and the sustainability of AI investments during this earnings season. Naka Matsuzawa, a strategist at Nomura Securities, pointed out that even if the performance data related to U.S. hyperscale cloud vendors (Hyperscalers) are strong, it is still difficult to predict whether the market will respond positively given the complexity of the scenario for U.S. technology stocks. According to the schedule, Google parent company Alphabet, Tesla, IBM, and Texas Instruments will announce their latest quarterly results after the U.S. stock market closes next Wednesday. Compared with the second quarter results itself, the market is paying more attention to Alphabet management’s latest guidance on future AI capital expenditures. Shinhan Investment Securities said: "The reason for the recent correction in technology stocks is the market's doubts about AI capital expenditure (Capex) and the debate over the nature of memory profits. The capital expenditure guidance of hyperscale data center operators led by Alphabet will be key."
Kevin Mahn, chief investment officer of Hennion & Walsh Asset Management, said that if Alphabet releases any signal to reduce its AI investment budget, it may trigger a chain reaction throughout the AI industry chain and have a serious impact on AI transactions. Wall Street currently generally believes that Alphabet is not likely to significantly reduce its AI investment in the short term. As OpenAI, Anthropic and Meta continue to increase competition, Google still needs to maintain a high level of capital expenditures to maintain its competitive advantage in the AI field. In addition, the market's emphasis on the financial reports of semiconductor companies such as Intel and Texas Instruments has also increased significantly. Financial and defense leaders such as American Express, Philip Morris, and Raytheon Technologies will also hand over their report cards one after another next week. LSEG data shows that analysts currently expect the overall profit of the S&P 500 index components to increase by about 26% year-on-year in the second quarter, which is expected to be one of the fastest growth rates in recent years. In terms of macroeconomics, there will be relatively few U.S. economic data next week. The most watched data include the U.S. ADP employment report, PMI data, new home sales data and weekly initial jobless claims. Previously released U.S. CPI and PPI data for June were both lower than market expectations, temporarily alleviating market concerns about the resurgence of high inflation. Current interest rate futures market data shows that traders generally expect the Federal Reserve to keep interest rates unchanged at its interest rate meeting at the end of July. The next 25 basis point interest rate increase is more likely to be carried out in December this year, rather than September as previously expected.
Kevin Mahn, chief investment officer of Hennion & Walsh Asset Management, said that if Alphabet releases any signal to reduce its AI investment budget, it may trigger a chain reaction throughout the AI industry chain and have a serious impact on AI transactions. Wall Street currently generally believes that Alphabet is not likely to significantly reduce its AI investment in the short term. As OpenAI, Anthropic and Meta continue to increase competition, Google still needs to maintain a high level of capital expenditures to maintain its competitive advantage in the AI field. In addition, the market's emphasis on the financial reports of semiconductor companies such as Intel and Texas Instruments has also increased significantly. Financial and defense leaders such as American Express, Philip Morris, and Raytheon Technologies will also hand over their report cards one after another next week. LSEG data shows that analysts currently expect the overall profit of the S&P 500 index components to increase by about 26% year-on-year in the second quarter, which is expected to be one of the fastest growth rates in recent years. In terms of macroeconomics, there will be relatively few U.S. economic data next week. The most watched data include the U.S. ADP employment report, PMI data, new home sales data and weekly initial jobless claims. Previously released U.S. CPI and PPI data for June were both lower than market expectations, temporarily alleviating market concerns about the resurgence of high inflation. Current interest rate futures market data shows that traders generally expect the Federal Reserve to keep interest rates unchanged at its interest rate meeting at the end of July. The next 25 basis point interest rate increase is more likely to be carried out in December this year, rather than September as previously expected.