Market gravitates toward semiconductors and M7 despite rising rates

The S&P 500 closed down 0.17%, the Nasdaq down 0.39%, and the Dow Jones Industrial Average down 0.18%.

Specifically, the Nasdaq and S&P 500 initially fell as 10-year treasury yields surged, but later rebounded as the rate increase stabilized. The Russell index showed relative weakness, indicating a mixed market.

Bitcoin, classified as a risk asset, showed a breakout movement after sideways trading despite rising 10-year treasury yields. This indicates increasing market liquidity even with rising interest rates.

Bitcoin is inherently considered an imperfect asset, and its value typically tends to decline during periods of rising interest rates. However, the recent phenomenon of Bitcoin prices maintaining or increasing despite rate hikes is unusual.

The inflow of funds into Bitcoin amid stable movements in the US Dollar Index (DXY) suggests an improvement in investment sentiment towards specific risk assets.

Despite rising interest rates, the semiconductor sector showed strength, remaining at the center of the market. This is because performance-driven companies with excellent cash flow and continuously increasing sales are less affected by interest rates.

Memory and storage-related stocks such as Micron, SanDisk, and Seagate, as well as semiconductor design and equipment-related stocks like Broadcom, AMD, Texas Instruments, Marvell Technology, and Nvidia, led the gains. The market saw a concentration of funds into stocks with financial health strong enough to overcome rising interest rates.

Brent crude fell 1.16% to $102.89, showing a rebound near its previous peak. This suggests that diplomatic variables significantly influence oil price fluctuations.

The possibility of diplomatic negotiations between the US and China, particularly concerning Iran, and China's need to meet oil demand are emerging as key variables influencing the oil price landscape. The oil-related ETF, USO, fell 5.77%, dipping below the $100 mark.

This indicates a continued trend of funds flowing into performance-driven stocks that can withstand interest rate increases.

The market generally showed a focus on selected stocks that are unaffected by rising interest rates. Bitcoin, which saw liquidity inflow, also continued its upward trend. If the possibility of further rate hikes persists, the overall rise in the stock market may be limited.

In the current market, the Nasdaq is showing relative strength, maintaining a sideways trend. In contrast, the S&P 500 tends to consolidate, and the small-cap market, like the Russell index, has shown weakness.

Therefore, investors can achieve greater returns by focusing on strong market leaders in specific sectors such as the Nasdaq and semiconductors. It is crucial to build a portfolio centered around strong-performing stocks.

Despite interest rate hike pressures, the market tends to see strong-performing stocks with excellent cash flow leading gains. The principle at play is that investing in such strong stocks allows for significant appreciation in stock prices.

The semiconductor index recently broke out of a symmetrical triangle pattern, gaining upward momentum. This indicates continued technical strength despite rising interest rates.

Rather than investing in overall indices, a strategy of selectively investing in rate-resistant stocks like those in the semiconductor sector is effective in the current market.

Analysts suggest that if it weren't for the M7, the overall market's decline would have been much steeper, with the S&P 500 expected to post losses for a second consecutive week.

The M7 ETF (MAGS) rose over 1% weekly, nearing an all-time high. This demonstrates that despite overall market weakness, the solid performance and growth potential of M7 companies are attracting investor attention.

M7 companies have faced concerns that high CAPEX (capital expenditures) could lead to negative free cash flow (FCF), but this is interpreted as investment for future growth. In reality, these companies maintain robust financial health even after deducting CAPEX from operating cash flow.

Notably, the continuous increase in order backlogs serves as a positive signal for these companies' future profitability. Despite high investment, strong order backlogs are expected to protect profit structures and enable sustained growth.

Sell signals were also detected in cash flow and fund manager surveys.

This implies that the market is showing signs of overheating and may be due for a short-term correction. The possibility of major companies experiencing profit slowdowns in 2027 has also been raised, with forecasts for a flat market trend to continue in the future.

According to a survey by the American Association of Individual Investors (AAII), the percentage of individual investors expecting a bearish market significantly increased to 53%, reaching extreme pessimism. This is the highest figure since the early days of Trump's tariff announcement in May 2015.

Conversely, optimistic sentiment recorded its lowest level in a year at 29%, indicating a significant contraction in individual investor confidence. Historical data sometimes shows that when individual investor pessimism peaks, the market paradoxically tends to rebound.

It is time to consider the possibility of the opposite outcome when market sentiment is heavily skewed in one direction.

Experts anticipate that the market's upward trend will continue until the midterm elections. However, the market landscape could change depending on the election results.

If a Democratic 'Blue Wave' (Democrats gaining control of both Congress and the White House) materializes, the market could temporarily falter, according to analysis. Market volatility may increase as policy directions shift depending on which party, Republican or Democrat, secures the majority of seats.

The Iran conflict has kept oil prices above $100, indicating high uncertainty.

The current oil market is incredibly complex and riddled with unpredictable factors, making it difficult even for supercomputers to forecast. Geopolitical risks have a profound impact on oil prices, leading experts to struggle with predictions.

The current market is a sustained bull market during an all-time high period, with upward potential still greater than downside risk. This is because companies' robust earnings support the market's downside rigidity.

Temporary declines in sectors with strong earnings, particularly tech stocks, should be utilized as buying opportunities. Stocks underpinned by solid earnings should be approached from a dip-buying perspective during corrections.

The strategy of purchasing shares of quality companies when the market corrects is presented as a way to maximize long-term returns.

Recent spot Bitcoin buying confirms increasing institutional investor interest. This factor raises expectations for liquidity provision in the virtual asset market and asset price appreciation.

Meanwhile, with the growth of the stablecoin market, lobbying activities by banks and legislators are actively underway. Although the Clarity Act's passage is delayed, signs of regulatory easing from the SEC (U.S. Securities and Exchange Commission) suggest the possibility of stablecoins being incorporated into the institutional framework. These environmental changes are expected to positively impact the overall growth of the virtual asset market.

This implies an upside potential of approximately 27% from Thursday's closing price.

Micron's P/E (price-to-earnings ratio) has fallen from the high 50s to 29, increasing its valuation attractiveness. The robust fundamentals of its data center and defense segments serve as Micron's growth drivers.

Specifically, data center revenue is expected to grow by 70% in fiscal year 2025, which is projected to significantly contribute to Micron's performance improvement.

Evercore maintained its 'Outperform' rating on Apple and set a target price of $380. The recent iPhone product cycle is expected to be better than anticipated, which should positively impact Apple's stock price.

Beyond increased iPhone sales, a combination of rising average selling prices, the launch of high-end models, and memory capacity upgrades is likely to drive prices up by over 20%. Specifically, increased demand for the iPhone 16 Pro and Pro Max models is expected, with a projected price increase of $100 per model compared to previous versions.

High consumer interest is confirmed, with 53% of survey respondents expressing intent to purchase new products.

The U.S. Securities and Exchange Commission (SEC) announced interim regulations for the issuance of tokenized stocks by certain companies, leading Wall Street to anticipate significant profits across various sectors of the financial industry. Tokenized stocks are issued and traded through a blockchain network-based digital record system.

The stock prices of related companies such as Robinhood and Coinbase surged by 7-12%, reflecting market expectations. This has the potential to reshape the issuance, transfer of ownership, and distribution methods of securities within capital markets.

Stock tokenization is also expected to enhance individual investors' access to the stock market by easing minimum investment size restrictions. A new financial system utilizing blockchain technology could increase efficiency and lower market participation barriers.

These changes could accelerate the digital transformation of financial markets and represent a crucial turning point that brings innovative changes to the structure of traditional capital markets.