Chips Sell Off on a Good Report
Samsung delivered strong preliminary earnings, and the stock fell anyway, down a little over 7% at last check. Profits surged to 89.4 trillion won. The soft spot was projected revenue, which came in slightly below expectations, and that was enough to matter because the stock had rallied exponentially into the print. Good numbers on their own were not the story. The concerns that drove the selling were CapEx spending and demand.
The weakness spread across the group. Nvidia was down about $3 and a bit more pre-market. Chip stocks pulled on the Nasdaq, yet the broader tape did not follow in lockstep. E-minis were down a little over a tenth of a percent, while Dow futures and Russell futures both traded higher. A mixed market, accurately described.
The Whiplash From Micron Enthusiasm
Just a day earlier the mood around memory was the opposite. The conversation centered on Micron and buying the dip, and there was real enthusiasm behind it. The long-term targets were dramatic. UBS carried a 1625 target on Micron. City upgraded the name, flagged a 90-day catalyst to watch, and set a 1400 price target, arguing the pullback was likely temporary and the fundamentals strong. Part of the bull case rested on the memory industry taking off further, with a projection of $1.2 trillion of free cash flow in 2027. There was a whole list of reasons offered for getting into the stock. The three top producers of high bandwidth memory are Micron, SK Hynix, and Samsung. On this particular morning, buyers were not biting.
How Much Is Already In the Price?
Memory stocks have performed extremely well, which raises the central question in the Samsung reaction: how much of this good news, and it is extremely good news, is already built into the shares? These names have rallied by incredible percentages. Pull up the charts and the run is obvious. So the real debate for investors is how much further the stocks can climb and how much of the optimism is already embedded in the price.
Nvidia coming off its highs adds to the doubt. AMD, by contrast, has been doing extremely well lately, and that relationship between the two is always interesting to watch. The pattern in Samsung fits a familiar one: a stock runs on speculation, then trades a little softer after the report as reality sets in. The magnitude of the prior rally is the problem, not the quality of the earnings.
Oil, the Strait of Hormuz, and Nagging Headlines
Crude oil sat just under 70, at 69.33. Two attacks in the Strait of Hormuz hit commercial vessels: one Qatari vessel carrying LNG and one Saudi vessel carrying crude oil. Both were struck, both reported damage. The response in crude futures was measured, up around 1% and still below $70.
The more durable takeaway is that investors should brace for a run of nagging, annoying headlines out of the US and Iran relationship. Expect incidents every several days, a headline that things are getting a little better, then a little worse, then another incident. The IRGC does not appear aligned with the Ayatollahs and the parliament who are negotiating with the US over a 60-day window. That internal split is what makes the relationship worth watching, and it keeps producing the kind of small shocks that lift crude by about 1%.
The Fed, Warsh, and the Direction of Rates
Attention also turns to the Fed minutes, due tomorrow. At the last meeting, nine of the 18 committee members were still looking for hikes. That stance should evolve over time rather than hold fixed, because the snapshot was taken at a single meeting. What crude oil has done over the last month, or six weeks, has to be folded into the forward look on interest rates.
Kevin Warsh has five committees studying different aspects of interest rates, and that structure looks critical going forward. As Warsh molds the Fed in his image, the expectation is that these five committees will hand Fed members a large body of information on data. The approach is transformational but slow moving. He is not charging in to disrupt or overturn things; he is doing it subtly. Waller reinforced part of this the day before, saying he agrees there should probably be less guidance going forward.
That leaves the direct question of whether rates are heading higher. The answer here is no.
New Highs and an Earnings Season Ahead
Underneath the chip weakness, new highs kept appearing. Bank of America hit a new high, and a cluster of cybersecurity names did too. Earnings season is arriving. The last round produced beats in the 80-something percent range, and many of those beats ran 10 to 12% ahead of estimates. That track record is fueling a good deal of anticipation for the earnings season about to begin.
