fall mainly on concerns over regional banks’ bad loans

10/17 U.S. stocks fall mainly on concerns over regional banks’ bad loans

The U.S. stock market started higher, reflecting expectations for further rate cuts due to comments from Fed members. However, amid the recent rise in bad loans by some regional banks, the management of large banks has turned downward due to warnings of credit risks and comments on stock valuations. In particular, the Russell 2000 index fell sharply as it was sold mainly in stocks that surged without performance or were burdened with valuation even with good performance. However, despite the highlight of credit risks, investor sentiment in the AI industry remains strong, and the market’s decline does not expand as some semiconductor companies involved are strong (Dow -0.65%, Nasdaq -0.47%, S&P 500 -0.63%, Russell 2000 – 2.09%, Philadelphia Semiconductor Index +0.49%)

*Factors to Change: Bank Credit Risk, Sale For Theme Shares

Despite solid earnings reports from large banks, concerns spread over credit risks across financial markets, putting downward pressure on the market. According to a recent Bloomberg report, the apparently booming U.S. corporate bond market has led to a severe crack in bond prices of several companies, including luxury retailer Saks and subprime car lender Tricolor, collapsing at an unprecedented rate. This is in line with JPMorgan CEO Jamie Dimon’s warning about credit problems, referring to the Tricolor bankruptcy. These concerns have led to the regional banking sector, where local banks such as Zions (13.14 percent) and Western Alliance (-10.81 percent) have fallen due to bad loans, increasing market vigilance over the soundness of loan books

On top of that, executives of major banks expressed caution about economic instability in their earnings reports, suggesting that uncertainty about the current economic situation is rising. JPMorgan Dimon, CEO, noted that the U.S. economy is generally resilient, but at the same time, there are signs of economic instability. In addition, Fed Chairman Powell argued that the job market is deteriorating faster than expected, and Fed directors Steve Myron and Waller warned that the trade dispute increases downside risks to economic growth and insisted on further rate cuts, citing economic instability.

As the stock market showed a good trend, including a new record high, despite such heightened anxiety over the economy, major executives strongly warned against overheating in the market. Goldman Sachs CEO warned the market that there was significant investor overheating and advised that things could change quickly, while Citigroup also pointed out that some sectors of the stock market were overheated and overvalued. These warnings lead to controversy over the AI bubble, coupled with cracks in the credit market and economic jitters, leading to a surge in the volatility index (VIX) and a sharp drop in the Russell 2000 index. In particular, large-scale sales digestions are underway, centering on small and medium-sized stocks that are in excessively overvalued areas such as quantum, lithium, nuclear power, and AI, which soared on the theme without performance

Along with credit risk and increased economic instability, signs of intensifying liquidity pressure in the short-term money market are also highlighted. The money market benchmark interest rate, SOFR, is above the Fed’s reserve interest rate (IORB). This means that some financial institutions are more expensive to raise funds in the repo market than to deposit with the Fed, suggesting a lack of liquidity in the short-term money market. These complex jitters lead to lower Treasury yields, a weaker dollar, a rise in the price of gold (over $4,300), a safe asset, and a slump in the stock market

*Featured Stocks: Theme Stocks, including Quantum and Uranium, and Financial Stocks Fall

Semiconductor: Micron Upgrades Target Stock
Nvidia (+1.10%) and Broadcom (+0.80%) closed higher as TSMC (-1.60%) reported solid earnings in its earnings report and raised its sales growth rate this year from about 30% to the mid-30% range, but continued to expand volatility, falling during the day. TSMC is off for profit-taking after starting higher, turning lower. Micron (+5.52%) is bullish as Citigroup raises its target price to $240 from 200, noting that AI will boost demand for DRAM. The Philadelphia Semiconductor Index fell during the day, but ended up closing 0.49% higher

Automobiles: Tesla Falls In wake of Downgrade in Investment Opinion
Tesla (-1.47 percent) fell after BNP Paribas reported below-market rate investment and a target price of $307, citing excessive valuation, saying 75% of its enterprise value stems from expectations for businesses such as Robotaxi and Optimus, which still have no sales. Of course, Tesla’s AI is optimistic, but it warns that it cannot justify its current stock price. Other automakers, including GM (-0.80 percent) and Ford (-0.17 percent), fell, reflecting concerns over a slowdown in vehicle sales in the fourth quarter amid economic instability. Uber (-2.12 percent) fell after DoorDash (-2.18 percent) announced it would work with Google’s Waymo to provide robot food delivery services. Unrest in competition is believed to have affected it. DoorDash surged after the announcement, but turned downward as it digested for sale

Secondary Battery, Lithium, Rare Earth Stocks: Increase Profit Realization
QuantumScape (-13.39%) was expected to lose 18 cents per share ahead of its earnings announcement on the 22nd, but it fell sharply. Some estimate that it was affected by the opening of profit-taking sales amid instability due to a sharp rise in stock prices despite no sales. Lithium America (-21.72%) plunged after JPMorgan recommended it be time to realize profits and lowered its investment opinion to below market returns to $5 as well. Other lithium-related stocks, including Albemarle (-2.92%), also fell. Rare earth-related stocks such as Trilogy Metals (-16.08%), MP Materials (-6.69%), and American Resources (-15.17%) mentioned that Greer could buy more shares, but fell as the desire to realize profits flowed in following the previous day.

Big Tech Stocks: Appruvin’s SEC Investigation Concerns, Monetization Issues
Alphabet (+0.07%) rose on positive news that Waymo’s business area has recently expanded, including the announcement of DoorDash and robot food delivery services.