Mid-week market thoughts

FDX, MU, semi conductors and PCE on Friday

Quick thoughts on what already feels like an insane week

• On Wednesday the RSP underperformed SPY the most since December, at 72 bps. That makes sense when you look at today’s heat map where if you weren’t a bank benefiting from fed relief, Google, or in the semi conductor space, you likely weren’t having a fantastic day.

  

• Today’s price action was likely a combo of two things, one the massive, short squeeze that happened on Tuesday that moved most of the market significantly higher, and second Fedex (FDX) earnings.

• Fedex earnings weren’t great, but they weren’t terrible either. What was terrible was their complete inability to give any guidance. I’m not going to sit here and write that FDX is this massive bellwether that means we need to panic bigly, but analysts were trying to at least figure out what visibility they did have into the next few quarters. Is their lack of guidance because the next few quarters are going to be bad, or because they honestly have no idea? The difference between the two of those answers is the difference between a market that likely drifts higher before exploding higher (once the all clear starts emerging) and a market that is in for some pain as no downside is priced in.

• Today’s market clearly didn’t like the answers given by FedEx, or was at least worried enough to take some of the bullish the economy trade off the table (long small caps short tech) leading to today’s broad bloody day below a flat market.

• Then we add Micron’s earnings. They were fantastic, with a guide at 11b revenue almost 15% higher than what the sell side was expecting. The question is, how much of that was already in the stock. The day after they reported earnings last quarter they closed in the 90s. They entered their earnings print today just under 130, or 35%~ higher. There was a lot of good news already in their stock so it wasn’t stunning when the stock faded some of the 10 point move higher it made immediately after the print.

• What was surprising was it faded the entire move, finishing afterhours lower than it opened today. Not exactly super bullish on a grade A+ prime print, and I mean that unironically, bulls couldn’t have asked for much more.

• Given how strong semis have been the last few days/weeks/since the April low, it does start to beg the question of what isn’t priced into these names yet. AVGO for example got a massive upgrade on Tuesday with a $400 (65% upside) price target within the next 12 months. With Nvidia these kind of impressive price upgrades at least make sense as their growth scales almost 1:1 with data center demand, at least so far. For Broadcom, 40%~ of their revenue comes from cell phones, which are looking like flat growth yoy and not much better in 2026, and the vast majority of their non AI growth has been VMware price increases which they cannot push through with the same fervor in the next six quarters as they have in the last six, the $400 target (implied 2.5trillion dollar market cap) doesn’t make much sense unless you put like a 40x revenue multiple on their AI division. Even then….ehhh.

• Arm is floating somewhere between 80 and 90x NTM number, AMD looks good, but its running again on the same ‘we’re going to take share from Nvidia’s GPUs with our AI offerings’ headline that its run on every quarter since Q3 2023. At least this time its starting at a lower base so it makes some sense, not 4% up in a day and 15% up in a week sense, but some sense.

• On the bearish side momo names are clearly slowing down with Circle and Coreweave both showing real weakness for the first time all month, something called build-a-bearish AI weapons system (BBAI) got smoked 8% at open after looking strong all day yesterday. One more bad day for Nbis and its down 25% off its recent highs, quantum looks very very tired, and Hims….well is tired from its eight hour boner.

• Reddit is the only momo name in the list that I follow that finished green today and it sure didn’t feel like it after opening and dashing up to close to 155 before falling almost 8%.

• The Vix even went down 1% on Powell comments today. Which was more than a 4% move to the downside, the index didn’t move up with that Vix compression.

• Though the dovish comments didn’t buffer the stocks that have high beta to the shorter end of the curve (like T and VZ) as they, and other high beta to the <2 year paper had bad days today.

• This all points to a market that is coiling, expect this time at the top of a balance range, not at the bottom. Vol will continue to compress until it gets it release, and given that there’s a solid call wall for EoM Friday at 6,100 it likely won’t be to the upside if it releases before then.

• Meanwhile protection is getting cheaper. With PCE hitting before market opens on Friday, keep an eye on mid dated puts (or calls if you want to bet on upside), as again the vix going down lowers the price of options. Heck I don’t like suggesting short term options because that’s just not my jam but a straddle for Monday at the money has an IV of like 12% right now. Not exactly pricy.

• Thursday will be pretty pivotal. Pension funds lean net sellers this month, but not nearly as bad as at the end of May, and if PCE comes in bullish we’re likely to see continuation up another 1%+ into the weekend. On the flip side the broad market is rotting, with semis looking like they might take a break after a massive run the last few days, downside to fill Tuesday’s gap by EoW might scare traders short term.

• As I said in my weekend post, I continue to favor keeping money on the sidelines. Be careful going into the back half of Thursday and Friday. Cashing in on the last few points of upside might be fun, but missing what might be a tread day down of -1 or -2% will benefit you more in the long run.