The S&P 500 (SPY) and Nasdaq (QQQ) both hit new record highs, and the market is taking a small break today. The spread has widened nicely over the last few trading days, so low-beta sectors may post small gains while high-beta and some technology stocks calm down.
Volatility stayed low. The VVIX, which measures the volatility of the VIX index, hit the year's lowest level yesterday - it came within one point of that low. In this kind of setup, some options traders may start selling VIX puts and buying VIX calls because volatility is relatively low. That hedging can trigger small moves. Right now the VIX implied volatility sits around 15.7, which points to a move of about 1% up or down.
The Treasury auction as the key driver
Wednesday's events could bring a big change because of the 10-year Treasury auction, valued at $39 billion. Last month's auction drew a good response, but the short-term auctions that followed, such as the 5-year, showed a sharp drop in foreign investor demand. If that weak foreign demand shows up today, it could push yields higher. Yields are up about four basis points this morning, still around 5.3%. The 10-year is now up six basis points. Steady rates over recent sessions are why stocks have been correcting and then rising. A correction, a short break, then a move higher is likely over the next few days.
For market direction, most call options sit at 7830 on the upside. On the downside there are put options at 7750; a break below could send it down another 10 points to 7740.
Technology and semiconductors
A small change is underway in semiconductors. Memory company stocks have been hit hard over the last few sessions, while Nvidia (NVDA) and AMD (AMD) are showing positive moves. This looks like a return to the typical bull market seen early and mid last year. There is some restructuring tied to AI regulation, plus many headlines about the buildout and how companies will finance that debt, all of which is making an impact. These should be kept separate: semiconductors show some confusion, but the overall market has recovered in recent days. A further rise in the S&P 500 equal-weighted index, holding its 20-day moving average, would help lift all stocks and matters for a risk-aware investing mindset.
SpaceX raising $40B for Nvidia chips
A Financial Times report criticizes SpaceX. SpaceX stock is trending slightly lower today, but it is up 14% over the last three trading sessions, and there is speculation about a link between SpaceX and Tesla (TSLA). SpaceX plans to raise about $40 billion. Per the Financial Times, Apollo Global Management (APO) will lead the deal. The money would fund the Nvidia (NVDA) chips needed to build SpaceX's own manufacturing. The proposed structure includes about $10 billion in bank loans and $30 billion in investment-grade loans. PIMCO was named among a small group of potential lenders. It is unclear whether this will happen, but it is one of the largest capital raises seen, especially in debt financing, to buy chips or build fab factories. High-yield credit shows yields rising slightly in that sector, tied to the large debt push for AI spending. Some analysts believe this leads to higher returns over the long term. A decline after a 14% three-day rise is not a bad situation.
Intel vs. TSMC
Elon Musk posted comments on X about a standoff between Taiwan Semiconductor (TSM) and Intel (INTC). Intel shares rose slightly before the open while Taiwan Semiconductor fell. The framing is an East Coast versus West Coast fight in AI, with Tesla and SpaceX on one side. Musk basically says they will build and operate their own Tera AI fab and not depend too much on TSMC. He said Taiwan Semi could be part of the deal, but only on a subleasing basis. Lip-Bu Tan said Intel is continuing to work with Elon and SpaceX to develop fabrication units. Current US policy is to keep everything domestic, and Musk is likely acting toward that and toward becoming a major semiconductor company over the long run; the capital raise is meant to speed that up. TSMC shares fell this morning, but TSMC still controls about 70% to 75% of the overall chip market and still dominates.
Constellation Brands earnings
Constellation Brands (STZ) numbers looked strong on revenue and profit, yet the stock keeps falling after the earnings release because the company is not making the profits the market expects. Net sales rose about 6% year-on-year to $2.63 billion, beating the $2.54 billion expected. Adjusted EPS came in at $3.74 versus the $3.56 expected. Beer segment net sales rose 5%, helped by the FIFA World Cup and NBA Finals. Wine and spirits posted double-digit growth, with net sales up 17% year-on-year.
Guidance was slightly weaker. The company reaffirmed fiscal 2027 EPS guidance and net sales guidance of -1% to +1%, but lowered operating margin guidance to 31% to 32%, down from 32% to 33%. It still sees pressure on profit margins and weaker-than-expected demand in beer, a problem that has run for a long time. The company has been hit by rising input costs over recent years, especially aluminum prices. The earnings call was the most anticipated item for details on managing input prices, and it appears no solution has been found yet. The stock is falling this morning on sluggish beer sales and tight margins.
One quirk: when earnings come out after market hours, the call often comes right after, but this call is set for the next morning, with no clear reason why.
