Friday's crash, inflationary pressures and SpaceX's historic IPO
The stock market ended last week dramatically, with the technology sector, and semiconductor manufacturers in particular, experiencing a sharp downward correction. Stock markets fell broadly globally, with both the S&P 500 and the NASDAQ indexes seeing their biggest single-day declines of the year so far. This is also brought an end to the S&P 500's nine-week uptrend, raising questions about the sustainability of the bull market.
What caused Friday's collapse?
Several factors were behind the market decline:
Broadcom earnings: Although the semiconductor giant Broadcom reported modest earnings, these fell short of both investors' expectations and the so-called "Whisper Numbers." A nearly 20% drop in share price was one factor in the downward movement that was reflected across the semiconductor sector, weakening market sentiment.
"Good news is bad news": The Non-Farm Payrolls report released on Friday surprised positively (172,000 vs. An expected of 85,000). However, the strong employment data was interpreted by the market as a sign that the US Federal Reserve may not be able to lower interest rates as expected. The resulting upward pressure on interest rates particularly affected on high-value growth companies and raised US government bond yields.
Overstretched market: The market has been rising almost vertically for months. Several technical indicators (such as the RSI) have been showing overbought conditions for some time. In such an environment, even minor changes in the news flow can trigger drastic downward movements.
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Broadcom, 1 year chart
Broadcom, 5 year chart
Space X's historic listing
Investors are also keepimng a close eye on the upcoming SpaceX IPO, which is scheduled for June 12. Valued at $1.75 trillion, it is set to be the largest IPO in stock market history. Investors see SpaceX not only as a space company, but also as a key player in AI and satellite infrastructure. If the IPO goes as expected, this could bring a new positive narrative to the market.
Looking ahead to Wednesday: Inflation numbers (CPI)
Market nervousness is also focused on US inflation numbers, which are due on June 10. If inflation shows signs of accelerating or remaining high, it could cement market fears that interest rates will remain higher for longer. In particular, oil price developments and the geopolitical situation in the Middle East are particular factors that could keep inflationary pressures persistent.
Technical picture: Has the uptrend been broken?
Although Friday's decline was sharp, the situation could also be analyzed as a possible sector rotation. More defensive sectors, such as healthcare and financials, remained more stable on Friday despite the broad decline.
Technically, the S&P 500 and NASDAQ indices have weakened in the shorter term. Both indices fell below the key EMA25 moving average (yellow) on the daily chart, which can be interpreted as a negative thing from a technical perspective. If the market decline continues, potential support levels could be found at the SMA50 moving average (blue) or longer-term trend lines. If these levels are breched, it could open the door to a more significant correction.
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S&P 500, 1 year chart
S&P 500, 5 year chart
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NASDAQ, 1 year chart
NASDAQ, 5 year chart
Summary
On Friday investors were the importance of risk management. The overheated state of the market coupled with market uncertaintiescreated fertile ground for a correction. This week's price action and the data releases this week could determine whether this is a permanent trend reversal or just a temporary correction.
Indicators shown on the graphs:
● SMA200: 200-day moving average, red.
● SMA50: 50-day moving average, blue.
● EMA25: 25-day exponential moving average, yellow.
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