The rotation trade persisted on Wednesday, leading to a significant decline in the tech-heavy Nasdaq, which tumbled 2.8% in its worst day since December 2022. Despite this, stock futures remained relatively unchanged on Thursday following the Nasdaq Composite’s sharp drop, as investors continued to move away from high-flying big tech stocks. In contrast, the blue-chip Dow, which has less exposure to the tech sector compared to the other major indexes, managed to outperform.

European markets saw an uptick on Thursday as investors anticipated the European Central Bank’s interest rate decision, with widespread expectations that rates would remain unchanged. The automotive sector led the gains, rising by 1.66%, followed by media stocks, which increased by 0.98%. Despite opening higher, tech stocks continued their downward trend for the week, ending the day down by 0.32%.

On Thursday, most Asia-Pacific markets experienced declines, primarily driven by a drop in chip-related stocks following reports of stricter export restrictions from the U.S. Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip maker, saw its shares fall by over 2.43%, which contributed to the Taiwan Weighted Index closing 1.56% lower. In contrast, Japan’s trade balance showed a significant improvement, reversing from a 1.2 trillion-yen deficit in May (approximately $7.7 billion) to a 224-billion-yen surplus.

Economic Calendar

Earnings Calendar

Notable reports for Thursday before the bell include, ABT, AHLB, CTAS, CBSH, DPZ, HXL, IIIN, KEY, MTB, MAN, MMC, OFG, SNA, TCBI, TXT, VIRT, & WNS.  After the bell include NFLX, AAR, GBCI, PPG, RGP & WAL.

News & Technicals’

The Biden administration has announced the cancellation of $1.2 billion in student debt for 35,000 workers. This relief comes because of the U.S. Department of Education’s improvements to the Public Service Loan Forgiveness program. These changes aim to better support public service workers by addressing previous issues within the program, ultimately providing significant financial relief to those who qualify.

On Thursday morning, Houston-based tech company Lancium and Denver-based Crusoe Energy Systems announced a multibillion-dollar deal to construct a 200-megawatt data center just outside Abilene, specifically designed to cater to the unique needs of AI companies. This project marks the first phase of a larger 1.2-gigawatt buildout. According to Lancium President Ali Fenn, once fully operational, this will be one of the largest AI data center campuses globally. This development highlights the accelerating shift towards powering AI and moving away from bitcoin mining.

Shares of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip supplier, dropped by as much as 4.3% during the trading day. Despite this decline, Ayako Yoshioka, a senior portfolio manager at Wealth Enhancement Group, suggested that there are still buying opportunities for long-term investors. This market movement follows a Bloomberg report on Wednesday indicating that the Biden administration may consider imposing restrictions on firms exporting critical chipmaking equipment to China, potentially escalating tensions between the two superpowers.

Bilahari Kausikan, Singapore’s former permanent representative to the United Nations, emphasizes the importance of maintaining a calm, clinical, and agile approach for both countries and companies navigating the current geopolitical landscape. His advice underscores the need for strategic thinking and adaptability in an increasingly complex and dynamic global environment, where swift and calculated responses are crucial for success.

Although the tech sector experienced the worst day of selling since 2022 the rotation trade persisted extending the DIA and IWM into an extreme parabolic pattern.  The bullish extension could continue but traders should be prepared to protect profits and watch for whipsaws should the profiting begin.   

Trade Wisely,

Doug