A Confused Market Rotating Out of Tech
The Magnificent Seven have turned into the Lag Seven. The Dow, S&P, and Nasdaq are all up over 10% on the year, while the Mag Seven sit basically flat. That gap defines the moment: the market is hunting for new leadership and hasn't yet decided who it will be.
The new leaders so far come from healthcare and industrials. Eli Lilly, riding its GLP-1 drug, is one. The airlines are another, catering to premium customers rather than riding a backdoor AI trade. What's clear is the direction of the flow: capital leaving Apple, Amazon, Meta, the big spenders of the AI trade, and looking for somewhere else to lead the market higher. No obvious replacement has stepped forward.
Samsung: A Blowout Report That Got Sold
Samsung knocked the ball out of the ballpark with a tremendous earnings report, and the stock sold off anyway. This is a classic sell-the-news reaction, profit taking, and fear-mongering selling. Two weeks ago the shares were down 12%; this morning they were down over 5% despite the strong fundamentals. If South Korea sneezes, the technology industry catches a cold.
The pattern across the tape tells the story. SanDisk is down. The winners are being sold off and the losers are being bought. Look at software stocks, hammered all year on the fear that AI will replace many of their customers, now catching a bid. It's a straight rotation out of what has been working and into what hasn't.
SK Hynix and the Memory Trade
Years ago the South Korean Kospi was the laggard of its region, barely worth discussing. Now SK Hynix drives the morning read on the memory trade. Samsung is a household name; SK Hynix is a company most people have never heard of, and it lists on the Nasdaq as an ADR on Friday.
SK Hynix will trade significantly higher on its first day, almost by muscle memory, then slowly drift back down. The precedent is SpaceX. Shares were picked up through Schwab and Goldman Sachs at $135, the stock topped at $226, more was bought at $198, and it fell to about $146. It listed on the Nasdaq and is down around 5% on that news. There's a limit buy order sitting at $98.98, because negative momentum looks set to push SpaceX below $100 a share.
Facebook in 2012 is the older template. The IPO priced at $36 and traded as low as $17 amid doubts about whether it was a worthy publicly traded company. Investors get excited about an offering, then the next shiny thing distracts them, and that distraction hands you a far better price to buy the shiny thing later, once everyone's attention has moved to the next event. Expect SK Hynix to trade astronomically on day one and then fade the same way.
Can the Rally Continue Without the Mag Seven?
Some Mag Seven names have slipped into bear-market territory, which raises the question of whether the index can reach the bullish year-end S&P targets of 8,000 to 8,100 without them. Halfway through the year, the market has already proven it can. The Dow, S&P, and Nasdaq are up over 10% while the Lag Seven stays flat. The Dow Jones hit its 22nd all-time high today and is up only 10% on the year. Call it death by a thousand paper cuts inverted into victory by a thousand paper shreds. It's an almost unremarkable rally, but a real rotation out of tech, with healthcare, consumer discretionary, and industrials leading the way. Certain tech names are doing very well; many others are struggling amid AI fatigue, a condition that could persist through the rest of the year. Much of the year's gains trace back to the other 493 stocks in the index.
