Last week saw renewed skepticism in the AI narrative, this week there is growing skepticism to the semiconductor narrative. A multitude of reasons from leveraged single-stock ETFs to a too hawkish Fed were apparent in explaining renewed Tech weakness. Indeed, despite Micron’s post earnings rally, which has now fully faded, much of the broader tech sector did not bounce back as might have been expected.
In a note laying out the biggest pain trades in the market currently, titled appropriately "The Biggest Pain Trades" (available to pro subscribers) HSBC's multi-asset strategist Duncan Toms writes that he is wary of how narratives can drive near-term market moves even if fundamentals do not justify changing tack. For example, last year’s AI bubble narrative saw US semiconductors fall c.15%. But as AI bottlenecks become more evident than bubbles, we saw a much more aggressive rally.
According to the self-admittedly bullish strategist, for HSBC to be more concerned right now, we’d need to see overly bullish sentiment and positioning. But by the bank's measures this is firmly neutral. More dovish US rate expectations could be another catalyst for equity strength – and last week’s data prompted a tentative step in that direction. Elsewhere, oil is no longer a key driver of many financial markets
(see RHS chart below and high frequency correlations).
As we enter into the second half of the year a lot of views for H2 have become widely held. So to address the key pressure points, Duncan and his team
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