The Dow Jones Industrial Average is trading near record highs while semiconductor stocks sell off, and Charles Schwab strategist Kevin Gordon says market breadth is the reason the two have not converged. Two-thirds of S&P 500 companies still trade above their 200-day moving average. The pressure, he says, sits mostly in tech.
The chip stock rout has not crushed the broader market. The Dow Jones Industrial Average is still trading near record highs and above all key moving averages, per Yahoo Finance AlphaSpace data. The S&P 500 holds above its 100-day and 200-day moving averages, though late last week it slipped below the 50-day.
Two-thirds of the S&P 500 sits above its 200-day average
Gordon named a few factors preventing the chip stock pullback from harming the broader market, but he said investors should be on the lookout for whether those trends reverse. Speaking on Yahoo Finance’s Opening Bid, he described a market that is more rotational in nature and not necessarily one that is correctional: “essentially two-thirds of S&P 500 companies that are trading above their 200-day moving average”.
The equal-weighted index and cyclical stocks have all signaled a strong economy, he explained. Most of the pressure and underperformance has been concentrated in the tech sector, and the reaction in financials, industrials or consumer discretionary has actually been positive.
KOSPI plunge ripples through memory chipmakers
That does not make the move in chip stocks any less worrying. Semiconductor stocks are under intense pressure as investors have begun questioning whether the artificial intelligence spending boom has become overheated and have grown more concerned about rising competition from China.
The fears intensified on Tuesday after the KOSPI plunged nearly 11%, its worst session in months. Memory chip giants Samsung Electronics and SK Hynix both suffered double-digit declines that rippled through the global semiconductor sector.
Adding to the anxiety were reports that China has made significant progress in memory chips through ChangXin Memory Technologies and in domestic lithography equipment. That is raising concerns that Chinese companies could become stronger competitors to established chipmakers.
US memory names crushed to start the week
Hot names in the US have taken the hit. Sandisk lost 11.8% in Monday’s session and is likely to see its declines extend today. Micron shed 3.25% on Monday and is also under pressure in trading today.
Gordon is not saying there is nothing to worry about, but he treats the selloff as a reminder of how extreme some of the moves can be, especially in the megacaps.
Source: Yahoo Finance
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