pre mkt thoughts 4 Jun 26

US yields 2bps higher across the curve - we saw the local highs of 4.5% and 5% for 10y and 30y respectively yesterday as the SPX encountered its first bout of weakness in the recent rally. Lots of things to unpack today. First off, in asian trading, KOSPI and NKY both are trading much weaker with 285A Kioxia trading down 9% from the highs of 83k yesterday in US hours Softbank as a high beta stock was also crushed by 11%. SK Hynix as well trades 6% lower from yesterday. Much of the asian markets are carried by the memory ecosystem ...so when they break... look out below!
HK markets continue to trade weakly vs its onshore counterpart....Its the battle between KWEB and KSTR. For those looking for discounts, KWEB definitely has those on valuations. When will it revert is another story.
In US markets overnight, we had a bout of weakness on the index level that quickly translated in broad based hits of -10% across the high beta momentum stocks. Eg, $LITE was down almost 10%, the entire nuclear space was hit as well. SaaS continued to take blows with the entire sector trading ~10% weaker. CRWD earnings was not kind with traders punishing it by a -10% sell off. $AVGO earnings reaction was also the diametric opposite (though with good fundamental reasons) of the past earnings reactions in $HPE $DELL etc. $AVGO trades down -11% atm.
Is $AVGO earnings the canary in the coal mine? - I dont think so. $AVGO did not raise the revenue target of 100B in 2027 which in my opinion was the reason behind the sell off. The earnings transcript reported very strong demand visibility into 2028 - this IMO is a positive indicator for overall demand - However "we fully expect that there will be some diversity of sources for them (google)" - this line will be more positive for other players like $MRVL or Mediatek.
Neoclouds as a sector was also broadly hit with moves of ~5%-10% across. $CRWV was the hardest hit, down 15% from the highs of 130 reached the day before. $IREN gave up all its announcement gains. I expect the stock to continue to get capped.
Crypto suffered tremendously with $BTC plummeting to lows of 61k. We have 2 outperformers - $HYPE and $ZEC that has managed to stand against the drawdown - whether they can sustain it is another story. Why did i post about crypto? I do think that crypto is quite reflexive to short term liquidity flows and hence can be a good guide towards index moves.
It is quite telling, how much difference a day can make - yesterday i talked about buying protection in case you need it. Put skew remains quite cheap and affordable at this point. Consider picking up capped downside structures. Put spreads, put flies remain good ways to gain cheap downside protection.
While i dont think the market full nukes - $MRVL pulling a 50% daily move is sign of the risk appetite in markets - always better to shore up cash before you need it! So that you can buy your favourite tickers at the prices you want.