Chips are swinging on almost no news
Semiconductor stocks are very volatile right now. The market first blamed the semi sell-off on the global bond sell-off, but yields have since dropped sharply and chips are still down. So the moves are not tightly tied to that.
The scale of the swings: Korea's KOSPI index fell 5% overnight. The Philadelphia semiconductor index (SOX) has moved 10% off its recent relative highs from last week, and that came right after a 20% run up from the July lows. Multiple AI and AI-adjacent stocks are moving 4%, 5%, or 6% in a single day. On the surface the overall index looks calm, but chips give it no boost.
I think there is still a lot of leverage inside the chip trade. When prices swing, those leveraged positions unwind fast, which makes the swings bigger.
Nvidia (NVDA) reports earnings next week, and that is a major catalyst for the SOX and the whole semiconductor space. The group needs NVDA to steady things and pull some volatility out. News flow is slow, we are at the end of the earnings calendar, so anything NVDA says gets magnified. It is a staple event.
The Marvell-Google deal and circular financing
Broadcom (AVGO) fell hard on the Marvell (MRVL)-Google (GOOGL) news. The signed deal lets Google buy some MRVL shares if certain targets are met.
The bigger issue is not who wins or loses from one or two deals. It is the circular financing that people have discussed for the past 6 to 12 months. Complex derivative-style deals keep building around who owns what and who finances what, and much of it is hard to see above the surface.
Wall Street long viewed these firms as free cash flow monsters with strong balance sheets. Now they are turning to the bond market or creative financing to fund deals, because that free cash flow is gone or will take a while to rebuild.
There is other news in the space. After the KOSPI closed, SK Hynix talked about share buybacks. That stock is higher today, and so is the iShares MSCI South Korea ETF (EWY). Google (GOOGL) is also tapping the Australian market with kangaroo bonds.
Ben Emons has written that the link between 30-year yields and semiconductor benchmarks is tightening.
Does the market need Nvidia more than Nvidia needs itself?
There has been some decoupling over the last few months between NVDA and the broad market, tied to sector rotations. NVDA was stuck between 190 and 200 for a while, then broke out.
The narrative matters more than the price move. The story is that chip demand is still there, NVDA can still raise prices, and revenue and earnings are still growing at double-digit rates with strong margins. Margins will compress at some point, but analysts push that out to 2027 or even 2028. Jensen Huang was out last week trying to find new check writers among Wall Street firms.
The macro picture: Treasury buybacks and possible 2027 cuts
The Treasury made an interesting move this morning. Two weeks ago it announced it would buy bonds on the long end of the curve, and now it is doubling that. Doing it before the open looked like an attempt to give more firepower to push rates down. This appears to be Bessent's intention.
It worked to a degree. The 10-year yield is down 6 to 7 basis points, and at one point the 30-year yield was down about 11 to 12 basis points. How long that holds is unclear.
The deeper problem is global. Long rates worldwide keep rising to the highest levels in 20 to 30 years, and the US government wants to get ahead of that because of the wide effects across markets and the economy. Trump tends to speak once yields move a lot, trying to get in front of it.
On the Fed, some bond market participants are now starting to price in a cut in 2027 - the first time that has come up in a while. No hikes are expected for the rest of 2026; those have been pushed out. Early bond market activity hints at possible cuts. That likely reflects slower growth, with GDP running around 1.5% to 2% going forward, which could be good for the market.
The rest of the week brings retail earnings, which give a read on the consumer, and housing data. But that data may look backward now given the Treasury's move on the long end. Watch what the Fed speaker says next week.
