TMTB EOD Wrap

Good afternoon. QQQs -2% crossing below the 50D as semis -4.8% led the way lower while Internet/Software finished roughly flat. What drove the sell-off? Oil was on the move again +8% while hawkish remarks from Fed Governor Waller shifted fed expects in a hawkish direction with the market now pricing in 42bps worth of hikes in 2H after coming into the day around 35bps. On Iran, Trump saying they are restarting the naval blockade of Iran and he has formally notified Congress that fighting with Iran resumed. The situation remains stalemated in a way that continues to frustrate Trump (and investors). We also had some de-risking/unwind ahead of the CPI tomorrow morning as yields popped 4-6bps across the curve.

In tech, a lot of the weakness in AI semis was attributed to the weakness in Korea overnight, where things weren’t looking good:

KOSPI is now 25% off its highs:

Looks just like the TMT Momentum chart, which was down 10% and is 30%+ off highs and hitting 3 month lows:

It’s clear the HOT AI SUMMER vibes left us a few weeks ago. Here’s how we put it in our weekly yesterday:

Sometimes the market vibe is clear ( the early “HOT AI SUMMER”) and it’s time to press the accelerator down, sometimes it’s not. We think it’s the latter right now. The big picture remains the same (yes, we’re still LT AI infra bulls), but it’s hard for us to come up with a coherent and broad near/medium-term narrative/direction around how AI semis are going to trade…What we'd emphasize instead: the past few months (honestly, the past few weeks) have brought so many genuinely new AI developments [around cost of intelligence & opensource among other things and disconnects like ORCL hitting 52wk lows] that we think the smart position right now is a large dose of humility and open-mindedness about what happens next. That's the vibe the market is giving us as well.

Layer in a good dose of factor whiplash every other day and the environment has become a lot harder to trade across the board as we enter an earnings season where stocks are moving more on any random day than the implied move for earnings. Today it was the software “AI losers” outperforming the semi “AI winners.” There’s been plenty of positive AI datapoints over the last couple of weeks (META, GPT/Grok, etc.), but price action is telling us the go-go days of May/early June are gone (at least for nwo). So for now: we stick to our current game plan of being more selective, focusing more on juicy AI semis r/r spots to add to names, not chasing extremes both ways, trimming more aggressively, and focusing on what kind of fun things we are going to do on our upcoming vacation.

Ok, let’s get to the good stuff. Not a ton of fundamental/news-based moves to call out, but we’ll cover what makes sense…