Market Storylines: Semi Rotation, Earnings Strength + Iran Implications

**Eric Criscuolo** (0:00)
Hey, I'm Eric Criscuolo, Market Strategist at the New York Stock Exchange, and this is Market Storylines. Every week, we're here to keep you up to date on the key trends and events driving global markets. We're recording this on Thursday, July 16th. New York City's sky is lit up in orange, but it's not to celebrate the Knicks, the Mets or the Islanders. Canadian wildfires are once again blanketing the city in a hazy amber. Now, we hope all those directly impacted by the fires are okay, but it's creating a strange feeling on Wall Street. Now, speaking of strange feelings on Wall Street, it's strange to see weakness in any stock tied to making memory chips or storage for AI. But that's what we're seeing this week. Micron, Western Digital and Sandisk were up north of 200% this year. Sandisk was actually up closer to 1000%. However, those three stocks are down 10 to 20% this week and about 30% this month. The Semiconductor space overall is seeing broad weakness, as the ICE Semiconductor index is down about 9% this week, 20% this month.
Now, those stocks were on all-time heaters since the end of March, so a pullback isn't terribly surprising, but it's still notable. The rotations that have become a defining characteristic of this market continue to flow across equities. Now, within tech, as the semis stumble, the big hyperscalers are seeing renewed strength, and software has at least stabilized. Besides the force of market gravity pulling things down after a long run higher, there's also been more talk about the historical cyclicality nature of the semispace, driven by big capacity increases by ASML and TSMC, among others.
Whether this time it's different because AI, well, that remains to be seen.
Other areas outside of tech have also benefited from this rotation, as underperformers see a catch-up trade. Sector laggards like healthcare and financials are up about 5% over the past month after being around flat for the year.
Speaking of financials, the sector resumed its position as the lead-off hitter for earnings, which kicked off this week. The banks have had strong results, with commentary more or less universally categorizing the US economy as healthy and the consumer as resilient.
The rotational activity has come alongside significant dispersion across equities, as well as low correlation between stocks. Now, that dynamic has showed up in the equal-weight index, managing to stay above water, while the more well-known market-weight index slid lower this week. For the year, the equal-weight is actually outperforming the regular S&P 500, and small caps are significantly higher, despite elevated yields and energy volatility. Now, on a more macro level, the heat has turned back up on the Iran situation. President Trump reinstated the blockade and renamed the US the Guardians of the Hormuz Strait, or GOFS. The US has struck Iranian targets throughout the week, with Iran responding and vice versa. While the market was able to move through the beginning of the conflict, a substantial re-escalation, which has been discussed in the press, would be a whole new ball game, as they say.
Now, the market has reacted by sending oil sharply higher. After hitting a low around $70, Brent Crude is back near $85 per barrel. That has kept, in part, has kept treasury yields near their highs. While the two-year has come in about 20 basis points, following cooler inflation data in both the CPI and the PPI reports this week, the longer end of the curve remains closer to its highs. Those yields have helped box gold into a relatively tight trading range around $4,000.
New Fed Chair Kevin Warsh's Task Forces have been staffed and will report their findings across all manner of Fed operations in the coming months. That should help shape market expectations for any shifts in Fed policy. Looking ahead tomorrow, Friday the 17th is an options expiration, so we could see some elevated volumes of volatility. President Trump is scheduled to address the nation Thursday night. Earnings will continue to be the main focus for investors next week, and the reports will ramp up, including some major tech names like IBM, Alphabet, ServiceNow, Intel, S&P, and Tesla. The macro calendar is relatively light with Flash PMIs, the main data release. That's a wrap for this week. You can watch market storylines on tv.nyse.com or on the NYSE YouTube channel. You can also listen on the Inside the ICE House podcast feed. Thanks for joining me. I'm Eric Criscuolo. We'll see you next week. Let's go Goths!