In what appears to be a leadership test after months of gains, chip stocks plunged early ahead of Micron’s earnings tomorrow. News was thin, with FedEx due to report later. Joe Mazzola, Head Trading & Derivatives Strategist at Charles Schwab, shares his insights.
Investors awoke to heavy tech sector selling that took root in Asia overnight and spread to Wall Street. Memory chip stocks, including Micron (MU), plunged following steep losses in South Korean chip names. At first glance, this looks less like a broad macro panic and more like a crowded leadership group finally getting stress-tested after an extended run. It could also represent a reset after a strong AI- and memory-led advance. It’s not necessarily the start of a full-market breakdown unless selling broadens.
Early weakness wasn’t limited to memory names, though that’s where it hit hardest. Most of big tech, including Apple (AAPL) and Nvidia (NVDA), dropped in what appeared to be “risk-off” trading. There was no clear instigator other than the South Korean weakness, and possibly trepidation ahead of Micron’s earnings late tomorrow. Any disappointment with Micron’s results could reinforce the waterfall dynamic, but a clean print could draw buyers back into the space. Elevated U.S. Treasury yields also could factor into the early softness.
Major indexes finished mixed Monday. The Nasdaq took some lumps from weakness in SpaceX (SPCX), Alphabet (GOOGL), and Meta Platforms (META), while the S&P 500 Index finished mildly lower and the Dow Jones Industrial Average climbed. Bank stocks might be in focus before Wednesday’s expected announcement of the Federal Reserve’s annual stress test results. Banks that pass the test often raise their dividends.
Three things to watch
Shipping and chip giants set to report
Earnings accelerate later today with shipping giant FedEx (FDX) followed late tomorrow by Micron. FedEx is often seen as a barometer of business and consumer demand, and shares have climbed steadily this year. FedEx gave an upbeat view of its business back in March when it last reported, raising annual guidance.
Shares rose sharply at the time. Since then, FedEx spun off its freight business into a separate company focused on trucking, and faced tough conditions thanks to rising oil prices, putting into focus its previous guidance for quarterly growth of 6% to 7.5%. Guidance could be in focus if FedEx had its margins clipped by those high energy prices. Micron, for its part, has been the poster child of the recent memory chip boom, which raised concerns about AI concentration risk.
“If AI investment disappoints, this could extend across markets broadly given the increased concentration,” said my colleague Michelle Gibley, director of international equity research and strategy at the Schwab Center for Financial Research (SCFR). Another big event for AI and chips looms tomorrow when Nvidia holds its shareholders meeting.
Chip tug-of-war
Upside call buying among retail traders looked strong in chips late last week at options expiration, but there appeared to be some hedging by institutional investors. The retail side of the investment community appears to still want to be long in chips, and so far these participants have been right, with the PHLX Semiconductor Index (SOX) up around 70% this year. This isn’t a signal that the trade is done, but it does suggest that when it is over, it will cascade because so many people have taken this position at the same time.
For any signs of a more serious change in direction beyond today’s early weakness, consider monitoring the 21-day moving average for SOX, which it’s remained above, or divergence between the index and its Relative Strength Index. SOX finished Monday at 14,634, and the 21-day moving average is 13,143, a number to watch as today’s selling threatens the long rally.
Warsh helps flatten curve
Treasury yields continued climbing early this week, extending gains seen after last week’s hawkish Fed meeting. New Fed Chairman Kevin Warsh gave the meeting a hawkish spin that traders interpreted as a signal of rate hikes ahead. Warsh sounded dovish earlier this year leading up to his appointment but was hawkish in his previous tenure as a Fed policymaker two decades ago. By this morning, chances of a rate hike by the Fed’s September meeting had risen to 70%, according to the CME FedWatch Tool, helping flatten the yield curve as shorter-term yields climbed versus longer-term ones.
“There’ve been shifting expectations around the Fed, and it appears they’re pretty hellbent about appearing serious on inflation,” said Alex Coffey, senior trading and derivatives strategist at Schwab. “The yield curve indicates this belief that they’re serious and reflects the impact on long-run expectations for inflation and economic growth, as well.”
On the move
Amazon (AMZN) fell another 0.8% this morning after yesterday’s nearly 5% plunge. Today marks the start of Amazon’s 96-hour Prime Day event, which could have an impact on shares of competing retailers depending on results. Bank of America thinks Amazon will generate $21.6 billion in goods sold, Reuters reported.
Carnival (CCL) shares sank 2% early as investors awaited earnings from the cruise giant expected this morning. Despite the war, management has generally touted positive business developments and customer demand.
Chip stocks were the worst overnight performers after some upward moves Monday. Micron, which fell as much as 9% at one point ahead of the open, found some traction as the opening bell approached and was recently off by 6%. SanDisk (SNDK), another memory name, was down almost 8%. Western Digital(WDC) also fell 6%. The catalyst was a 10% plunge in the South Korean market, which is heavily weighted toward semiconductor firms there.
SpaceX fell 16% Monday before finding a few buyers this morning and advancing 1%. Shares remain just above last week’s low point of just below $150. SpaceX confirmed its first-ever bond issuance, according to Yahoo Finance.
IBM (IBM) withstood the early tech meltdown, posting 5% pre-market gains after an upgrade to overweight from neutral at JPMorgan Chase. The analyst cited greater confidence in software acceleration the second half of the year, and said IBM could gain incremental traction as a beneficiary of AI infrastructure.
Technically, support for the S&P 500 Index begins at the 7,370–7,380 gap-fill area, then 7,300 as a psychological level, followed by roughly 7,200.
The U.S. dollar index hit a new high for 2026 above 101 this morning. Weakness in the Japanese yen that sent the dollar to nearly two-year highs versus that currency is a tailwind, as are rising chances of at least one Fed rate hike this year. This morning’s strength might also reflect “risk-off” trading that often sends investors into the dollar.
Super Micro Computer (SMCI) jumped more than 16% Monday after getting an upgrade to buy from GF Securities. Another boost came from the company announcing a data center product designed to help deploy Nvidia’s Vera Rubin NVL4 platform. Shares fell 4% this morning.
Communication Services was by far the worst-performing S&P sector yesterday, diving more than 4% amid weakness in Alphabet. Shares of the search and cloud giant toppled 5% Monday after Reuters reported that a well-known scientist planned to leave Google DeepMind to join AI startup Anthropic. This followed the departure of another AI leader in the company last week who went to OpenAI, CNBC reported, reinforcing the intense competition for top AI minds.
Some consumer stocks, including home builders, clothing and athletic retailers, and automakers felt pressure Monday, possibly due to rising Treasury yields and worries about future rate hikes. Nike (NKE) fell 1.3% this morning after being downgraded by Evercore ISI to in line from outperform.
