U.S. stocks rise amid shutdown concerns and quarterly rebalancing issues
The U.S. stock market was on the rise in early trading after Nvidia (+2.05%) showed strength by announcing robot-related technologies, but returned higher due to concerns about a possible government shutdown. In addition, the supply and demand factors related to the rebalancing of institutions ahead of the end of the quarter are also characterized by changes in individual stocks. In general, the market fluctuated depending on supply and demand factors while waiting for the announcement of major economic indicators such as government shutdown issues and employment reports. Immediately before the market closed, the rise continued on the news that the Democratic Party would approve the short-term temporary budget (Dow +0.15%, Nasdaq +0.48%; S&P 500 +0.26%; Russell 2000 +0.04%; Philadelphia Semiconductor Index +0.16%)
Concerns over a U.S. government shutdown are acting as an uncertainty factor. However, the fact that U.S. President Trump will meet with congressional leaders of both ruling and opposition parties is positive, driving the stock market’s rise in the early days of the year. The index fell due to uncertainty at the time of the government shutdown issue in the past. However, the index rose, paying more attention to the performance, considering that it overlaps with the performance season rather than the shutdown issue. This reflects investors’ perception that the shutdown is only a temporary volatility factor and should pay more attention to fundamental factors in the market. On top of that, the index rebounded in that uncertainty was resolved after the shutdown. Therefore, the shutdown issue can increase the volatility of the index, but it cannot change the fundamental direction, and the government shutdown issue can be resolved by the presence of Democratic congressional representatives at the meeting between Trump and congressional leaders. Considering this, the market evaluates that the shutdown issue is not a fundamental factor that changes the direction of the market
Meanwhile, despite various anxieties, the stock market has shown its power to hit a new all-time high. In response, the market assessed that the power of the option market was largely influenced. In fact, the number of call option purchases by individual investors is increasing rapidly, and if these large-scale call option buying positions are accumulated, the price sensitivity (Delta) of call options increases, so the investors who sold them have to hedge. In particular, when a call option reaches near the strike price (gamma change), more underlying assets must be bought and hedge. The phenomenon in which the demand for the purchase of mechanical underlying assets flows into the market is a ‘gamma squeeze’, which in turn increases the price of call options, further encouraging purchases. As a result, the index and stocks continue to rise due to the power of supply and demand regardless of the economy, performance, etc
In the meantime, extreme optimism has progressed, such as a significant increase in call option trading volume. In general, a high call/put volume ratio means that investors are betting on an index rise, and related supply and demand strengthens the short-term upward momentum. This phenomenon is more related to structural changes in individual investors’ preference for trading short-lived options such as zero-day options. This increase in call option buying using leverage can be interpreted as a structural upside factor for the market as individual investors actively use options as speculative means. However, it should also be noted that this extreme optimism can be interpreted as a warning signal that the market is overheated, which may increase individual stock volatility for no reason because there is also a risk of a short-term adjustment. In particular, it should be noted that changes in supply and demand related to rebelling by institutions at the end of the quarter may break related systems, which may increase individual stock volatility.
Meanwhile, comments from Fed members continued, with Fed director Hamack arguing that inflation is still worrying and that the next year or two is likely to exceed the inflation target. In particular, it is difficult to say that tariffs will only be a one-time effect and that a limited policy stance should be maintained. Governor Mussalem argues that the possibility of further rate cuts is open, but inflation is above the Fed’s target and should move carefully. The New York Fed Governor Williams suggests that long-term expected inflation is well-fixed and he does not want the job market to become too weak, so he should cut rates further.
Semiconductors: Nvidia Rises on Robot Technology Announcements and More
Nvidia (+2.05%) rose after announcing new open-source models and simulation technologies to accelerate research and development of humanoid robots at the robot conference. Another positive factor is that Jefferies raised its target price to $220 from $205. Of course, there was news that Huawei would double its AI chip production, but the impact was limited. Micron (+4.22%) has been on the rise in DRAM and NAND prices, and some research institutes, including Trentforce, recently predicted that the company will continue to expand its growth in the fourth quarter. In particular, it is also positive that the outlook for continued price growth continues amid growing uncertainties over Trump’s tariffs on semiconductors. AMD (+1.19%) rose after news that it is drawing attention to growth in its CPU sector. Philadelphia Semiconductor Index rose 0.16%
Semiconductors and equipment: Intel falls after TSMC denies partnership
Intel (-2.87 percent) fell after TSMC (-0.05 percent) denied a report that it was discussing a partnership with Intel. TSMC fluctuated due to the influx of cost issues for relocating factories to the U.S. Broadcom (-1.98 percent) fell due to concerns over customers’ departure to alternative solutions after Vmware’s vSphere 7 support ended. Deteriorating relationships with existing customers also contributed to worsening brand trust. In other words, the decline in Broadcom is assumed to be a VMware-related issue rather than a chip demand issue. Ram Research (+2.15%) rose as Deutsche Bank upgraded its investment opinion to buy. Other semiconductor equipment companies such as AMAT (+0.51%) and ASML (+1.17 percent) also rose. Western Digital (+9.23 percent) and Seagate (+5.35 percent) rose as Morgan Stanley and Rosenblatt upgraded their target prices, saying they would benefit from AI-based demand.
Automobiles: Tesla Watches Ahead Of Q3 Deliveries
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