Semiconductors and More China Stimulus Deliver a Market Surge
A sudden surge doesn’t help traders looking for entry points. But it is the market close that is most important.
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Technical conditions deteriorated on Wednesday, with breadth running more than two to one negative, but a sudden surge in semiconductors and more stimulus in China has trapped the bears once again and is creating a gap-up open on Thursday morning.
Micron Technology MU, the largest U.S.-based manufacturer of semiconductors, jumped sharply higher on predictions that AI will surge sales and profits due to demand for high-bandwidth memory. The Micron news is lifting the entire semiconductor sector SMH, which was about 3% higher early Thursday.
The market was expecting more economic stimulus in China, but the aggressiveness of the program was surprising. The Politburo is now targeting the housing market and a wave of new spending that has created the strongest move in Chinese stocks since 2020.
In addition, a third rate cut in Switzerland and growing odds of another half-point cut in the U.S. in November are helping to offset concerns about an economic slowdown. There has been growing nervousness that the economy may slow regardless of the Fed’s dovish policies, but the willingness of central banks to aggressively cut rates is preventing recession talk from accelerating.
A long list of Fed officials, including Jerome Powell, will speak on Thursday, which will impact the soft-landing narrative. The PCE inflation news on Friday could also be a major market mover if there is any indication of an uptick in inflationary pressure.
Technically, Wednesday's action was miserable. While a few big-cap stocks helped to hold up the major indexes, there was broad-based selling and very poor action under the surface. Small-caps are rolling over, and groups such as biotechnology IBB have already dropped by around 5%. The Magnificent Seven (MAGS) names are covering up the problems, and they will be leading again on Thursday due to AI strength.
My major concern recently has been the lack of good entry points for new buys. While the indexes are hovering around all-time highs, there haven’t been many great entry points. And the potential for negative seasonality is still lurking as we await the start of third-quarter earnings in a couple of weeks.
I’m frustrated that I can’t put more money to work, and a sudden surge like we are seeing on Thursday morning doesn’t help. We’ll see how well the market holds on to the early gains. Once again, it is the close that is most important.
At the time of publication, Rev Shark had no positions in any securities mentioned.
