Key Takeaways:
The semiconductor stock rally is facing a significant test as the PHLX Semiconductor Index (SOX) tumbles 9.8% from its recent high, following a Bank of America survey showing nearly 75% of fund managers view the sector as the market’s most-crowded trade.
“I think they’re going to be asked, in a number of different ways, to comment on what they’re seeing in some pockets of the semiconductor market that have gone crazy over the last several weeks, specifically memory and CPUs,” said John Belton, portfolio manager at Gabelli Funds, regarding upcoming commentary from sector leader Nvidia.
The pullback in chipmakers has been sharp, with the SOX index falling for three consecutive sessions. Intel, a standout performer over the past year, has slumped 15% in the last week alone, while Micron Technology posted a similar decline. The selling pressure comes after the index had surged nearly 50% from its low on March 30, fueled by the artificial intelligence frenzy.
This rotation out of chips is happening as rising bond yields create headwinds for growth stocks. Benchmark 30-year Treasury yields traded above 5.17%, the highest since 2007, while 10-year notes topped 4.65%. With oil prices holding above $100 a barrel, concerns are mounting that the Federal Reserve may be forced to maintain its aggressive stance, reducing the appeal of high-valuation equities. All eyes are now on Nvidia's earnings report on Wednesday, which could either calm market nerves or confirm that the hottest trade of the year has become too crowded.
This article is for informational purposes only and does not constitute investment advice.
