Market Insights | US Stock Market: Chip Sector Declines + Powell's Hawkish Remarks

The S&P 500 dropped 224 basis points, closing at 5,275 points, with after-hours buying of $150 million. The NASDAQ Composite Index fell 304 basis points, closing at 18,257 points; the Russell 2000 Index dropped 89 basis points, closing at 1,876 points; the Dow Jones Index decreased by 173 basis points, closing at 39,669 points. A total of 15.7 billion shares were traded across all U.S. stock exchanges, down from the year-to-date average trading volume of 16.4 billion shares. The VIX, or fear index, rose by 784 basis points to 32.52.

The significant drop in stocks is attributed to:

Pressure on the semiconductor sector (NVIDIA fell 7% due to new export restrictions to China, with the company stating it will take a $5.5 billion impairment charge; ASML dropped 5% due to earnings falling short of expectations and lowered guidance);
Powell's comments in the afternoon were hawkish, concluding that "currently, we are in a good position to wait for clearer information before considering adjustments to our policy stance." Will Marshall noted that given the tension on both sides of the mandate, his comments suggest a reactive rather than proactive policy, with the threshold for rate cuts being a clear moderate form of policy or sufficient evidence of weakness in the labor market.

Despite market fluctuations, activity has not truly rebounded. Due to the shortened holiday, SPX trading volume has significantly decreased, down 38% from the 10-day average. Overall trading desk traffic and market volume continue to decline sharply, indicating that investors are fatigued by the ongoing repetitive trading news. Sectors are taking a defensive stance, with telecommunications, real estate investment trusts, and consumer staples performing well, while semiconductors, software, and internet sectors lag behind. Large-cap stocks continue to perform poorly, especially Amazon-tag" counter_id="ST/US/META" name="Meta Platforms" trend="">$ Meta Platforms.US, affected by increasing cyclical concerns, and during this decline, these stocks did not show "defensive" characteristics. ETFs accounted for 33% of the trading volume (in line with recent highs). The top buy orders in the S&P remain weak, at only $2.94 million.

Our on-site trading activity level is rated 4 out of 10. Our on-site trading shows sell performance better than the 30-day average by 261 basis points, averaging -72 basis points. Risk appetite is moderate, with LO and HF slightly net selling, mainly affected by the overlap of technology and macro product supply.

Derivatives: Volatility saw its first buying this week, although May VIX futures underperformed spot volatility by nearly 2 points as afternoon selling accelerated. The fund flow in the volatility trading desk remains relatively subdued, but we did have clients reduce index protection positions after options expiration this morning and re-add some VX call positions. Tomorrow will see the regular options expiration, and we estimate that over $2.6 trillion in nominal options exposure will expire, including $1.2 trillion in SPX options and $480 billion in single-stock options. The relative scale of this expiration is lower than that of April 2024. The implied volatility for straddle options on that day is expected to be a range of 1.70%.

Specific market analysis is shown in the figure below:

Long Image