Rotation - where to?

00:00:00: Hi and welcome to Swiss Codes.

00:00:02: Daily... market talk.

00:00:03: It's Thursday, July, the hottest chip makers remain under-selling pressure today as investors rotate out of these hottest names late.

00:00:12: but the latter does not necessarily mean that AI trade is fading.

00:00:16: it means that it is changing hands.

00:00:19: Broadly speaking this week's software and expected U.S inflation numbers ease selling pressures in some sectors across markets although the geopolitical backdrop remain tense and risk are looming.

00:00:34: But investors always find a place to go, so today I'm looking at where they.

00:00:40: So at this moment, when I come to my desk in the morning.

00:00:59: The first thing i'll look at is the US crude and Cosby charts.

00:01:02: This morning, the former is looking calm with us crude consolidating gains a touch below the eighty dollar per barrel level With however looming upside risk due to the re-escalation of the tensions between the u.s And Iran.

00:01:15: and no and inside the latter?

00:01:18: The cospy index is doing poorly today.

00:01:21: on the other hand To be polite the Korean index is down by around seven percent at time.

00:01:27: I'm talking here.

00:01:28: And i insist on the letter at a time, because the volatility is such in the Korean index specifically dominated by two membership makers that we could go from minus three percent to plus three percent and the blink of an eye.

00:01:42: so ASML announced good results yesterday.

00:01:51: in the second quarter and fiscal year sales forecast blew past investors' expectations.

00:01:56: The stock released seven to eight percent as a reaction, but gave back all gains to finish yesterday's trading session .

00:02:11: despite TSMC resistance.

00:02:26: slowing demand growth, but doesn't sound great at the time.

00:02:32: The chip makers are priced to perfection and beyond.

00:02:35: so as a result SK hynix is down nearly twelve percent this morning in Korea.

00:02:39: more importantly it Is now drilling through a key Fibonacci support which has the major thirty point two percent retracement on April.

00:02:50: twenty-five this June rally.

00:02:52: Now, stepping into the medium term consolidation zone should call for a deeper downside correction for SK Heinecks and eat into some fifty percent premium that the SK Heines ADRs have over the original Korean shares in Korea.

00:03:07: That's power of US market liquidity will last.

00:03:11: extra leverage nature of the Korean chip makers And that extra ETF and leverage ETF buying and selling through adjust to market prices keep both and SK, Hynix.

00:03:21: And the ultra-risky category of market for investors looking at some ports.

00:03:27: full use stability.

00:03:28: Reconferting news this morning however is that Nasdaq futures are flopped.

00:03:32: so just in that chip sell off may be countered by gains across other sectors.

00:03:38: Rotation, not rotation as yesterday's fresh data offered further relief to the market also rattled by hawkish vet fears these days.

00:03:47: The June PPI numbers from the US came notably softer than expected by analysts.

00:03:52: both headline and core ppi figures fell more than expected!

00:03:56: The former took five-and a half percent level ,the latter two four point seven per cent level year over year.

00:04:02: but regardless.

00:04:03: now you see both CPI PPI figures in the U S remain mean meaningfully higher than the Federal Reserve's two percent inflation target and require tighter monetary policy moving forward.

00:04:17: I found more on it.

00:04:18: Charlie Billilow for example, highlights that the US inflation today sits around thirteen percent above the pre-pandemic trend and diverging to the upside which would equal to about four per cent annualized CPI since beginning of two thousand twenty.

00:04:34: There is no point in having a two person inflation target.

00:04:37: he says The FET policy should remain restrictive until that gap between long term inflation trends pre-two thousand twenty and today's.

00:04:48: Good news is that no one will work on that problem today.

00:04:52: If inflation slows, the Fed will simply allow itself to relax regardless of long-term trends and divergence at pre-pandemic levels.

00:05:01: That's good news for markets because yes it means that prosperity gap between capital owners and workers will grow in favor of capital owners but later if the underlying economy is weakening along with a growing wealth gap.

00:05:14: there are not negative financial assets.

00:05:17: On the contrary, the weaker economy and more supportive of federal reserve policy.

00:05:22: The stronger support for financial markets because lower the borrowing costs for businesses.

00:05:28: It does sound terrible but this is where we are today!

00:05:32: As such a surprising as it sounds the S&P five hundred returns just a few points below its all-time high level reached on first July as Morgan Stanley also joined big banks reporting shine results.

00:05:46: However, it was pressured by the selling across memory chip makers there.

00:05:50: Macron and Sanders both lost eight percent yesterday while Dow Jones industrial index and Russell two thousand gained as investors rotated out of big technology.

00:06:01: Zooming out and looking a few months back, the Russell two thousand index actually gained more than twenty five percent since they marched up during the Iranian war led energy crisis.

00:06:12: And that's crazy because small companies are harder hit by rising energy prices and prospects of higher borrowing costs right?

00:06:21: But no!

00:06:22: Not this time around, the small companies in the Russell two thousand outperformed their S&P five hundred peers.

00:06:29: that rose around twenty percent during the same period.

00:06:32: So what's the story?

00:06:34: What is going on behind a scene where our investors rotating and How much of that rotation into small caps is actually rotating investors away from technology and AI?

00:06:46: These are the questions I'm asking today.

00:06:48: And, The answer is, Investors aren't necessarily rotating away from Technology & AI!

00:06:54: Because looking at the winners of the Russell Two Thousand, the companies shoulder their latest leg up in the Russell two thousand index are... Chip making equipment, data center gear and cloud service.

00:07:07: Sounds familiar?

00:07:09: iPod holdings, ultra clean holdings.

00:07:11: ASM research applied up to electronics and bloom energy that powers AI.

00:07:16: Data centers were the biggest winners of the past few months in the Russell two thousand index.

00:07:21: The price action there looked indeed very similar To the one displayed by the hottest chips sucks like micron or SK hynex.

00:07:28: And for most these companies I just cited earnings growth rates we're also comparing to the big technology and other technology names.

00:07:37: during the first quarters of AI boom or today, we're talking around thirty-sixty percent earnings growth over next year as a way for fab equipment spending accelerates.

00:07:47: Analysts expect for iCore's EPS to grow by roughly fifty eight per cent annually with revenue growing around fifteen per cent forward that company reflecting strong operating leverage in the actual boom cycle industry.

00:08:02: So digging deeper, we see that the rotation into these smaller companies is not necessarily rotating out of AI or technology but rotating deeper in to the AI supply chain.

00:08:13: Moving away from the mega cap beneficiaries like NVIDIA, Microsoft and Broadcom toward smaller companies there are actually supplying chips networking equipments and smart conductor manufacturing tools.

00:08:25: Surprise!

00:08:26: And same for the Dojons The big banks ,the big industrial names as Caterpillar.

00:08:30: their benefit massive AI build out and is financing while debt markers are increasingly being tapped across the broader AI ecosystem players from Data center developers and utilities, infrastructure providers And AI newcomers.

00:08:46: So in this context the question is How do you rotate out of technology?

00:08:50: Or Do You Rotate Out Of Technology At All or Rather Chase The Next Beneficiaries Of The New Technologies?

00:08:56: It Could Be Pharma Healthcare Consumer Staples As Perhaps The Next AI Winners Won't Be Technology Companies Themselves But The Companies Enabling financing or benefiting from the AI revolution.

00:09:07: So where do you think they are?

00:09:09: Let me know.

00:09:10: and comments.

00:09:11: I'm really interested to see in which pockets the AI money will end up, In your opinion.

00:09:16: so this is all for today!

00:09:20: And thank you for joining me and Thank You For All Your Beautiful And Supportive Comments.

00:09:24: I hope this episode of Market Talk has been helpful, and it's been insightful to you!

00:09:31: So please do not hesitate leave your comments, reactions or questions below as usual.

00:09:37: Follow us on Instagram at xonlinkton but also on Whatsapp, Threads, Telegram & Blue Sky for regular market updates Subscribe To Our YouTube Channel market commands and please don't forget to hit the like button on these videos.

00:09:53: so let us know that you enjoy them.

00:09:56: So I will meet again tomorrow, until then good day

00:10:14: trading!