The Nasdaq and S&P fell sharply over the past week and fell below their respective 50-day moving averages, suffering their worst week in more than a year. After the pullback in the past three weeks, the US and Japanese stock markets have basically given up half of their gains. The performance of the S&P 500 and Nasdaq 100 this year has been lower than that of the CSI 300:
Last week, technology leaders were the biggest losers, with double-digit declines (even higher than Bitcoin). Nvidia fell 14.5% and broke through the 50-day line and the key support level of $800, ARM fell 31%, AMD fell 22%, Broadcom fell 12%, AMD fell 11%, and Tesla fell 14%. In contrast, consumer goods and utilities sectors performed best, with a decline of only 0.3%.
This week's accelerated decline in semiconductor, AI and other technology stocks began with the earnings report of ASML, Europe's highest-valued technology company. ASML's total new orders in the first quarter were far below expectations, down 61% from the previous quarter. Previously, its orders hit a record in the fourth quarter of 2023. ASML explained that the decline in new orders was mainly due to a sharp drop in demand for the most advanced EUV lithography machines. The market believes that the results announced by ASML may be a warning for technology giants that will announce financial reports in the future.
Subsequently, ASML and TSMC both released cautious comments on future demand, and chip and artificial intelligence stocks were sold off. In addition, AI server maker SMCI collapsed on Friday after failing to release preliminary results, raising concerns about overall demand for artificial intelligence.
The panic over NVDA seems a bit excessive. Its monopoly is temporarily solid. Two points: first, NV link can assemble multiple chips into large computing centers; second, CUDA developer resources are the richest in the world and cannot be surpassed for the time being.
Fed officials made more hawkish remarks this week. The 10-year Treasury yield rose to 4.62% and the 2-year yield rose to 4.988%. Despite the intensification of conflicts in the Middle East, yields fell sharply in the middle of the week but eventually rose back quickly. Wall Street currently does not expect a rate cut in June, and September has become the consensus time. However, the good news is that the ECB and BoE still expect to start cutting interest rates in the summer, and this has not been postponed.
Industrial metal prices were affected by Russian metal sanctions, with copper and aluminum prices reaching a one-year high. Crude oil fell back, wiping out all gains this month as Iran and Israel were relatively restrained.
Safe-haven demand was more evident in gold, which broke through $2,410 on Friday and closed positive on four of the five trading days. Cryptocurrencies have diverged from precious metals in the past month, and the correlation between bonds and precious metals has also broken, which has surprised many market participants. Deutsche Bank has therefore updated its model, introducing a "memory" factor, and fitting that this year's rise in gold prices is "paying back the debt of the past decade":
More and more senior Fed officials have mentioned "interest rate hikes":
New York Fed President Williams warned that if the data shows that the Fed needs to raise interest rates to achieve its goals, then the Fed will raise interest rates, and "raising interest rates" is not his expected baseline;
Atlanta Fed President Bostic also said that if US inflation rises, he is open to raising interest rates;
Fed Chairman Powell acknowledged the lack of progress on inflation and that it may be appropriate to let high interest rates play out for a longer period of time, but raising interest rates is not in the near term.
Data:
March retail sales exceeded expectations and earlier data was revised upward;
Business survey results were mixed;
The number of first-time unemployment claims remained at a low level.
AI bubble burst? First ASML, now TSMC cuts its global chip outlook for 2024
Our conclusion is too pessimistic.
Many news reports conveyed similar meanings. TSMC's stock price fell 12%, although TSMC's performance exceeded expectations (revenue increased by 13% year-on-year and net profit increased by 9%) and only released a few negative outlooks, mainly concentrated in mobile phones and automotive chips (not to mention personal computers, which have been weak), and the demand for AI chips was described as "never stopping".
TSMC's net profit margin was 40%, continuing the company's historical high, while the industry average was only 14%, indicating that TSMC has pricing power. However, traditional server demand is still relatively weak and accounts for the largest part of TSMC's revenue (HPC 46%). TSMC predicts that the revenue contribution of AI servers will more than double in 2024, accounting for 10% of total revenue in 2024, and continue to grow to more than 20% in 2028.
Despite the good performance in the first quarter, the subsequent press conference lowered the growth rate of the semiconductor industry excluding memory in 2024 to 10% (previously expected to be over 10%), and lowered the growth rate of the foundry industry to 15% - 17% (previously expected to be 20%).
Against the backdrop of a weak recovery in the global semiconductor industry, the "chill" released by TSMC was rapidly amplified, directly leading to the collapse of chip industry stocks, among which the share prices of chip giants such as Samsung Electronics, MediaTek, and ASE fell. Analysts say that the performance and expectations of semiconductor stocks in the first quarter of 2024 will be "more lackluster" and "unable to replicate the AI performance of 2023."
Due to the US Tax Day (which ends on April 15), global stock funds saw outflows in the seven days ending April 17, with bonds, stock funds and money market funds all affected. Tax Day may lead to reduced market liquidity as investors may need to sell assets to pay taxes. It is important to note that as Tax Day passes, the market tends to return to a state driven by fundamental factors such as corporate earnings, economic growth and monetary policy.
Fund flows and positions
LSEG data showed that investors sold a net $21.15 billion worth of US stock funds, the most in a week since December 21, 2022, and the third consecutive week of net outflows. Money market funds saw net outflows worth $118.1 billion, the largest weekly outflow since at least July 2020:
U.S. bond funds saw weekly outflows of $3.83 billion, the largest net sell-off since mid-December, mainly from local government bonds, while short- and medium-term Treasury bonds remained attractive:
The sectors in which U.S. stock investors sold the most were consumer discretionary (US$701 million), healthcare (US$651 million) and gold and precious metal funds (US$447 million), but bought financial industry funds with a net value of approximately US$281 million because longer or higher interest rates are good for financial institutions.
However, Goldman Sachs' clients have been net buying for two consecutive weeks. Although short positions are increasing, long positions are growing more:
Among them, long only Funds are rapidly reducing their holdings, while long and short HFs are starting to go long:
The overall US stock SI is at its highest level in at least 2 years:
China concept funds have seen net outflows for six consecutive weeks:
Cryptocurrency
Considering that YTD cryptocurrencies as a whole are still up more than 30%, especially BTC compared to the stock market and other cryptocurrencies, which only pulled back 8.8% in April, it can be seen that this market is still quite resilient. Previous analysis pointed out that BTC is like the 3x long NASDAQ100 index, which fell more than 15% in April. Altcoins had a large correction in April, and many well-known projects also fell by more than 40% at one point. However, as Iran and Israel perfunctorily counterattacked each other, the risk of amplifying the conflict was settled, and BTC safely passed the fourth halving. The market rebounded sharply late on Friday, and BTC rebounded the most in nearly a month on the 2nd:
April was the first monthly correction after BTC had risen for 7 consecutive months. The 7 monthly positive lines should be the longest consecutive positive lines since the advent of BTC, followed by the bull markets in 2013 and 2021, which rose for 6 consecutive months respectively. So it is not surprising that there was a correction of around 10% this month.
BTC spot ETFs had a small net outflow of $204 million last week. Bitwise's BITB had its first net outflow since its listing, but IBIT, FBTC, EZBC, and BRRR have never had any outflows. Surprisingly, IBIT and FBTC are the main inflows of funds, with inflows of $15.4 billion and $8.1 billion respectively since their listing.
IBIT ETF currently has about 30 institutional investors, mainly funds and advisory institutions, and each institution holds a small percentage of shares. These institutions shown in the table only account for 0.2% of the total share of IBIT, and there is still a lot of room for growth.
Bitcoin successfully halved on Saturday, and RUNE rune casting was launched at the same time. Due to the wealth-making effect of the previous Ordinals inscription project, the launch of the rune immediately led to an increase in network fees. The 2024 halving block has become the most expensive block ever mined in Bitcoin history (37.67 BTC). The median transfer fee of the Bitcoin network rose to $92 on Saturday, and miners' income increased instead of decreasing.
Previously, many analysts worried that if the price of BTC did not rise after the continuous halving, the computing power would stagnate and the security of the network would not be able to carry greater value, causing the network to fall into a negative spiral of price and computing power double kills. However, judging from the activeness of inscriptions, runes and various L2s, this possibility will be greatly reduced.
The negative impact is that high transaction fees may hinder the adoption of Bitcoin as a regular payment method, especially for small transactions, which goes against the original intention of Bitcoin to expand users. Another major consequence is the increase in "dust", with more than half (53.94%) of Bitcoin addresses holding less than 0.001 BTC. If fees remain above $60, these balances effectively become "dust".
Runes can be simply understood as a protocol for issuing native FT on Bitcoin without off-chain data. The previous inscriptions were engraved in the isolated witness data, while the runes were engraved in OP_RETURN, which means directly using UTXO and has a very small on-chain footprint. In contrast, BRC-20 is based on ordinal theory, which is not a native component of Bitcoin. The token issuance mechanism of this protocol will also lead to a surge in the number of UTXOs and network congestion, and only NFTs can be issued with limited usage scenarios.
After the halving, Bitcoin's inflation rate will drop by half to 0.8%, lower than gold's 1.4%:
Electricity costs are the largest expense for miners, typically accounting for 75–85% of miners' total cash operating expenses. The average electricity cost for U.S. stock miners is about $0.04/kWh. Based on this cost, VanEck estimates that the total cash cost of the top 10 listed miners after the halving is about $45,000/BTC. Despite the shrinking profits, it is possible to remain profitable. Historically, Bitcoin mining stocks have recovered strongly after halving and outperformed spot prices in the halving year. Miner stocks seemed to have an early reaction on Friday:
An interesting topic: whether reflexivity occurs
Because almost everyone knows that according to the previous three times of history, Bitcoin will rise before halving, fall or consolidate after halving.
Because the historical data is limited, the previous three times repeated the same plot. In addition, the market was too small and CEX had just appeared when the first halving was in 2012, so the reference is limited.
But in the financial market, professional investors tend to trade in advance, so we don’t often see the same pattern happen again and again.
Will this time be different?
In the four halvings, this year is similar to 2016, with a sharp correction three weeks before the halving, reflecting that the market wanted to cash in on the positives in advance, and the market continued to fall by more than 10% a month after the halving in 2016. In 2012 and 2020, the market rose a few weeks before and after the halving. Therefore, the pessimists represented by JPM believe that since there has been a sharp rise before, the positives have been digested in advance, which is not a solid foundation.
Focus this week
This week, 43% of SPX components will release financial reports, with Microsoft, Meta Platforms, Google and Tesla as the protagonists of the financial reports. This week, the first quarter GDP data, March PCE, and manufacturing PMI values will be released.
A report from Bank of America reviewed the performance of the S&P 500 during major macro shocks/geopolitical events in history, pointing out that the average decline from peak to trough of the S&P 500 during these major events was 8%, but it rebounded by an average of 10.5% three months later. The average number of days from the event to the market trough was only 17 days, and the median was only 4 days. It seems that the correction time caused by the Israeli-Palestinian conflict has exceeded this level.
Preview
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