The Market Brief
U.S. stock index futures rose on Tuesday, as semiconductor shares extended a recovery from a recent selloff, while investors awaited major tech earnings for clues on the future of the AI trade.
Macro Viewpoint
Volatility in chip stocks, which spread to the broader market, pushed Wall Street’s main indexes to three straight sessions of losses, despite a strong start to second-quarter earnings and cooler inflation numbers.
Buyers are picking up chip stocks at cheaper valuations after the sector’s worst week in more than a year. Chipmakers have been the biggest beneficiaries of AI’s global rollout, but volatile trading has followed as investors question lofty multiples and whether hyperscalers can sustain their spending.
Volatility is likely to stay elevated given the concentration still present in parts of the market, but the correction has been deep and long enough to ease some of those valuation concerns.
Prime Intelligence
The SPX has been an increasingly poor proxy for the average stock's performance. Correlation with its own constituents is fading, and the cracks are already showing up outside equities.
The chart below tells the story: the rolling one-month realized correlation between the S&P 500 and its equal-weighted version has fallen to roughly 50%, a sharp drop from levels that typically sit closer to 0.9-1.0. The Nasdaq-100 against its own equal-weight version, by contrast, is still sitting close to 1.
A small group of large-cap names is now driving the S&P 500’s headline return while the broader constituent base trades largely on its own, a disconnect that has already spilled into credit, with hyperscaler spreads widening, CDS blowing out, and deal concessions expanding in TMT.
That thin correlation is about to be tested again, with roughly a fifth of the S&P 500 reporting earnings this week and GOOGL and TSLA, the poster children for the “ROI on capex” debate, reporting Wednesday, meaning single-name reactions from names that size can move the index without reflecting what’s actually happening to the average stock underneath.
The Market Brief
In todays brief we break down why thinning liquidity in the E-mini means your next order could cost more than you think.
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