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The US stock market’s self-defense mechanism is running full blast

5/31/24 11:39AM

One of the oldest — and truest — market axioms is that in a crisis, correlations go to one.

That means when conditions take a meaningful turn for the worse, everything in the stock market goes down together.

Right now, we’re in the midst of one of the longer streaks in history without a 2% decline for the S&P 500: 321 sessions and counting. Amid this streak, the VIX Index — a gauge of the how volatile the S&P 500 is expected to be over the next month — recently hit its lowest levels since 2019.

Meanwhile, these days tech stocks are still doing relatively well when bond yields are rising — because no matter whether the risk-free rate is 4% or 5%, that’s a rounding error compared to the return potential associated with AI, in the minds of corporate executives. That kind of spending does not appear to be that rate-sensitive — especially because the companies with some of the biggest AI capex outlays are sitting on piles of cash in the form of retained earnings.

Back in 2017, the narrative was more about high yields being a headwind for expensively-valued tech stocks, because so much of their earnings potential was in the future not the present (and would need to be discounted by this higher interest rate).

Another key way in which this story only rhymes with but doesn’t quite match the excruciatingly low-volatility world of 2017 is that these individual groups are, on their own, moving much much more. Their moves are just offsetting one another.

“The difference between now and 2017 is when bond yields were so much lower we didn’t even have these under surface swings like we do now,” said Dave Roberts, independent trader. “Indexes are fine now, but names and sectors are still moving a lot more than 2017.”

It’s like a duck: the illusion of calm on the surface of the water belies the furious paddling going on underneath.

The KBW Bank Index and the Invesco QQQ Trust Series 1 ETF (which tracks the Nasdaq 100) have had a daily gain or loss in excess of 1% on 74 occasions so far this year. Compare that to 88 instances for 2017 as a whole.

Putting this together, this suggests that if indeed we do get more of a “correlations to one” moment for the equity market, it could be quite a bit more disruptive than the down days were in 2017 — as the likes of tech and banks have already demonstrated they’re primed to move.

Tasha Matsumoto

The S&P 500 and Nasdaq 100 notch new closing highs as investors shake off the government shutdown

The S&P 500 closed 0.3% higher, the Nasdaq 100 was up 0.5%, and the Russell 2000 gained 0.2%.

Matt Phillips9h

Intel jumps on report of customer talks with AMD for foundry division

Intel shares popped in afternoon trading Wednesday after Semafor reported that it’s in preliminary talks for AMD to come aboard as a customer for Intel’s troubled contract chip manufacturing division, known as a foundry.

Shares were recently up 5.7%.

Semafor stressed that sources said, “It’s unclear how much of their manufacturing would shift to Intel if the two companies reach a deal, or whether it would come with a direct investment by AMD, similar to the deals cut by other companies. It is possible that no agreement will be reached, the people said.”

The addition of AMD — which competes with Intel in the CPU space — as a customer would be another big win for the US chipmaker following its partnership with Nvidia announced in mid-September.

TSMC, the primary manufacturer of AMD chips, was only briefly rattled by the news, and remains well in the green on the day.

Intel in early talks to add AMD as foundry customer

The addition of AMD — which competes with Intel in the CPU space — as a customer would be another big win for the US chipmaker following its partnership with Nvidia announced in mid-September.

TSMC, the primary manufacturer of AMD chips, was only briefly rattled by the news, and remains well in the green on the day.

Jon Keegan10h

ChargePoint jumps as EV sales soar

Riding along with some other EV stocks, shares of ChargePoint jumped 4.1% in recent trading. The last rush to take advantage of Biden-era federal EV incentives has put a bunch of new electric vehicles on the road, sending ChargePoint up along with Tesla, Rivian, and Lucid.

Ford said earlier Wednesday that its EV sales hit a quarterly record, and it and other EV makers have been exploring unorthodox ways to replicate the EV tax credits for consumers through year-end.

Still, ChargePoint is down over 47% for the year and narrowly escaped NYSE delisting with a 20-for-1 reverse stock split back in July. And it’s not hard to see why: the company has never had a profitable quarter.

J. Edward Moreno10h

Trump admin reportedly backs off on pharma tariffs

The Trump administration will not be imposing tariffs on pharmaceutical companies by the deadline it had initially given them, a White House official told STAT.

Last week, President Trump announced on Truth Social that starting on October 1, there would be a 100% tariff on patented, branded pharmaceuticals “unless a Company IS BUILDING their Pharmaceutical Manufacturing Plant in America.” As of October 1, those tariffs have not gone into effect and it’s unclear when they will, according to STAT.

Trump administration backs off 100% pharma tariffs threatened to start today

Matt Phillips11h

GE Vernova declines after analyst downgrade of top AI energy trade

Power turbine maker GE Vernova is down midday after RBC analysts cut their rating on the stock from “outperform” (essentially a “buy”) to “sector perform” (essentially a “hold”), suggesting that long-term earnings expectations for the company might have gotten too optimistic.

RBC’s Christopher Dendrinos wrote:

“Our longer-term expectations are more conservative than consensus expectations which we think could be over appreciating the cadence of revenue growth in the power segment in 2029-2030. We believe investors are already fully valuing the company on the longer-term 2030 outlook and there could be more limited opportunity for positive rate of change in current expectations.”

Dendrinos argues that the Street’s expectations for when the river of payments will materialize from the service contracts GE sells to maintain the newly installed turbines is too soon. He wrote that it will take a much longer cycle:

“Mgmt sees an opportunity to double the installed base of baseload power over the next 10 years which should support significant rev growth and stronger margins (we estimate gas service margins over 30%).

However, the first major service cycle typically occurs ~3-4 years after installation so the benefit of service price increases and new LTSAs are unlikely to begin to benefit the income statement until later in the decade and will be a gradual increase.”

Earlier in the year, GE Vernova was a top performer as the AI data center trade boomed. It was up roughly 100% for the year in late July, making it the third-best gainer in the S&P 500 for the year.

It has stalled since then, though it remains up more than 80% in 2025.