Friday: NASDAQ Composite down 4.18%!
In essence, Friday's 4.18% drop in the NASDAQ Composite had the greatest impact on the week's loss of 4.68%.
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In the case of the S&P 500, a 2.64% pullback in the final session of the week was almost identical to the 2.59% weekly decline.
Finally, the DJIA fell 1.35% on Friday, while the weekly loss reached 0.32%.
Europe performed relatively better, but Friday's 0.75% drop in the DAX accounts for more than half of the weekly pullback of 1.38%, though in this case it is worth considering that half of the Friday decline on Wall Street was played out while European markets were already closed.
Forecast? FALLS
In practice, it is worth preparing for a scenario of further discounts in the region, which will adjust valuations to US declines and widen the losses of the main indices.
A similar scenario is expected from other markets – especially Asian ones – which will only have a chance to respond to Friday's discounts on Wall Street at the start of the new week.
Looking for the reasons behind the Friday crash of US markets, it is hard to ignore the fact that Wall Street was already sending signals of fatigue from a two‑month tech sector rally, which translated into a nine‑week run of S&P 500 gains. Doubts began to surface about the upcoming debuts of SpaceX, Anthropic and OpenAI.
Undoubtedly, the biggest supply shock appeared where demand had been strongest in the last two months.
The semiconductor sector saw a drop of over 10%!
The basket of semiconductor sector companies – measured by the iShares Semiconductor ETF (SOXX) – fell 10.44% on Friday, translating into a weekly decline of 5.15%.
Assessing the crash, however, it is hard to ignore the fact that even on Thursday, SOXX's year‑to‑date gain exceeded an impressive 100% with a three‑month gain of 76%. The correction was somewhat expected and its dynamics are appropriate for the scale of optimism in which the segment – and the market as a whole – operated in recent weeks.
Undoubtedly, a key part of the forces at play were US labor market data, which showed a rise in non‑farm jobs in May of 172,000, while April and March data were increased by 93,000 jobs.
Data combined with a stable unemployment rate of 4.3% painted a picture of Fed policy focused more on inflationary threats than on labor market threats and raised valuations for the credit price hike by the US central bank. The above‑outlined corrective impulses were supplemented over the weekend by renewed fighting in the Middle East.
Israel's bombardments in Lebanon were met with Iranian attacks on Israel and Israeli counter‑attacks on Iran. The balance is a rise in oil prices, which does not help lower inflation and, in a sense, strengthens the risk aversion that emerged after Friday's readings from the US Department of Labor. However, when asking about the depth of the correction in markets, it is worth noting that Friday's US declines were played out in the context of capital rotation towards other market segments.
Invesco S&P 500 Momentum down 4.19%
In essence, comparing the performance of two ETFs – Invesco S&P 500 Momentum and Invesco S&P 500 Low Volatility – shows that the first lost 4.19%, while the second gained 1.74% with a Friday gain of 1.45%. The latter element appears as a signal that the discount was more about expected profit realization sooner or later than a serious bear attack.
Nevertheless, Friday sessions indicate that equity markets are entering a phase of greater volatility and less one‑way trading, which has borne fruit in the aforementioned nine weeks of S&P 500 gains.
The last weeks were a period of pricing the perfect scenario and it is time for a somewhat more sensible look at markets, especially the semiconductor sector. In sum, Friday's discount may have been a surprise only for those who believe in gains devoid of corrections.
