The Semiconductors Are Bad News... But Here's the Good News

European semiconductor company ASML Holding N.V. ASML accidentally released its earnings report on Tuesday afternoon. The market was shocked to see that third-quarter orders were roughly half of what was expected. 

ASML stock tumbled over 16% on the news and dragged down the entire semiconductor sector with it. The Semiconductor ETF SMH lost 5.4%, which dragged down big-cap technology and caused the Nasdaq 100 QQQ to lose 1.4%.

This may be a major problem as semiconductors are often viewed as the canary in the coal mine when it comes to economic slowing. While AI demand for chips is robust, other areas of the economy that have nothing to do with AI are showing increasing signs of stress.

We will have more clarity on the problems after the news is digested, but the main issue of debate will be whether this is a company-specific issue or an emerging theme.

The good news is that the rest of the market held up quite well. Small-caps gave back some nice intraday gains but still managed a positive close. Breadth wasn’t bad either, with around 4,150 gainers to 5,200 decliners. More than 1,000 stocks hit new 12-month highs.

The big positive is that this surprise news did not tank the entire market and take everything down across the board. Instead, there was rotational action in groups such as retail, financials, biotechnology, and, of course, Apple AAPL. If the market is going to correct, then this is the most bullish way to do it.

The ASML blowup will make upcoming technology earnings reports even more important. The market will be looking to see if there is confirmation of this order weakness, and there will also be some questions about AI demand.

I was pleased to see more focus on stock picking among secondary stocks. If that continues, it will be very bullish for speculative traders.

Have a good evening. I’ll see you Wednesday.

At the time of publication, Rev Shark had no positions in any securities mentiuoned.