The Calm before the Midterms

Our internal screens are pointing to downward momentum in Tuesday’s premarket, behind pressure in semis. Announcement of new competition from China sent Korean chipmakers down last night, and the KOSPI finished more than 5% lower. US tech is sensitive to moves in the KOSPI, though reasonable minds could disagree about just how translatable the actual business pressure really is from Korea to the US. Remember, the KOSPI is dominated by two chip companies, Samsung Electronics and SK Hynix, which account for about 50% of the index’s market cap.

It’s worth taking a step back for perspective. INTC has fallen more than 20% in the past month, trading under $100 in today’s premarket. CRWV has declined a similar amount in just the past 5 weeks, now trading around $77. Our favorite names are pulling back towards ranges that make them tradeable and accessible to retail participants. We’re not calling a bottom, just saying that, green side or red side, these names are much easier to trade than some others that are more subject to influence from a rarified stratum of hedge fund players.

Bond yields, while still high, are well behaved. The 10-year yield reads 5.20%, which is notably under the 5.30% mark set at the last auction. Since yields have driven much of the equity decline that has brought favorite names back into play, it stands to reason that, all other things being equal, the marginal impact of this yield environment will be positive in the near term. Overall, it makes sense to look selectively for dips between now and the midterm elections. After midterms, though, expect US military action in the Strait to light up once again.