Amid Stock Market Decline, Why Are Semiconductors and AI Strong?

As the stock market continued its three-day decline, the U.S. market also showed weakness yesterday. The main reasons cited are rising oil prices, the deteriorating situation in the Middle East, and Treasury buybacks falling below expectations. The U.S. Treasury expanded its buyback program from the original $2 billion to $6 billion, but this fell short of market expectations of $8-10 billion, limiting its ability to curb rising Treasury yields.

Amidst the overall index's decline, these specific sectors showed strength, creating a divergence in the market. This trend indicates that investors are not abandoning their expectations for future growth drivers, even amid macroeconomic instability.

Consequently, Treasury yields actually rose. The market widely recognized that buybacks alone would be insufficient to curb rising interest rates, given the high inflationary pressures from rising oil prices.

It was revealed that the Treasury Secretary strongly demanded the passage of the 'Clarity Act'. This bill is expected to play a crucial role in expanding the stablecoin ecosystem, linked with buybacks. Buybacks require demand for short-term bonds in the process of converting long-term to short-term bonds, and stablecoins could serve as the link for purchasing these short-term assets. This has the potential to stimulate the cryptocurrency market and risk asset preference.

Brent crude prices recently surpassed $100 for the first time in a while, shocking the market. This is primarily attributed to increased geopolitical risks due to the escalating situation in the Middle East. Surging oil prices can exacerbate inflationary pressures and deepen economic instability, and are particularly likely to act as a political Achilles' heel for the Trump administration ahead of the midterm elections.

Instead, it is judged to be at a peak state where anxiety is at its highest, and a scenario of maintaining or de-escalating the situation in the future is considered more likely. From an investment perspective, it is expected to be advantageous to focus on this possibility of de-escalation.

In the U.S. stock market, demand shifted from software companies, big tech, and AI infrastructure to consumer goods, finance, and healthcare, then rotated back to the now cheaper AI infrastructure. This, combined with tangible improvements in AI technology like GPT-4o, has heightened expectations for these sectors.

Following Claude's emergence, OpenAI has escalated competition in the AI industry through strategic responses. This competition is a major reason for the continued strong upward trend in the semiconductor sector. With a surge in token demand for AI investments, the semiconductor industry gains continuous growth momentum.

However, this simultaneously raises concerns that AI could exceed human control. Although the test was conducted in a controlled environment, there are warnings that if AI reaches a level of intelligence beyond human control, potential risks that cannot be resolved by cybersecurity alone could emerge.

Major cybersecurity companies such as Palo Alto, CrowdStrike, and Fortinet have reached all-time highs. This indicates that the market is shifting from merely recognizing the importance of security to viewing security investment as a necessity with the advent of the AI era.

Meta launched its AI agent 'Muse', receiving positive market evaluations. Following the news of Muse's launch, Meta's stock price closed up 6.5% yesterday. By combining Meta's unique ecosystem with the next-level agent AI area, pioneered by OpenAI's new AI market, Muse is generating disruptive app downloads and user experiences.

This is because price indicators are considered to have a greater impact on the market than employment data. After confirming the impact of rising oil prices on industrial producer prices through PPI, the market will likely gauge how this trend will translate into consumer prices via CPI.

There is skepticism that if Apple, pursuing a high-price strategy, releases new products like foldable phones, the high price could act as a market entry barrier. Regardless of how innovative a product is, if the price is excessively high, it may struggle to gain consumer preference.

Compared to Huawei's foldable phone, which is priced at around 5 million won (approx. $3,700 USD), this is a competitive price. This unexpected price competitiveness is attracting significant market attention.

Samsung Electronics is also aligning with this trend, introducing a passport-sized design, establishing it as a market mainstream. This is expected to provide users with new experiences in terms of portability and design, intensifying market competition.

In this situation, the market rally is highly unstable, harboring volatility that could collapse at any time. Major economic events such as the upcoming September FOMC meeting and CPI announcement are expected to significantly impact the market, requiring particular caution in investments.

Investors should not be swayed by short-term rallies but instead review their portfolios in preparation for market fluctuations. This approach is not merely about reducing investments but about effectively responding to unexpected downturns while still leveraging market opportunities.

The move to induce a stronger yen, along with Japan's interest rate hikes, holds significant meaning within the context of its correlation with the U.S. economy. The U.S. is strategically counteracting yen strengthening to prevent the liquidation of yen carry trades. In essence, it is analyzed that the intention is to prevent a yen decline, thereby blocking Japan from mass selling U.S. Treasuries.