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Less worries about stock trading

The aftermath of the typhoon is actually the Taiwan stock market!

In the morning trading today, Taiwan's Taiwan Weighted Index opened with a sharp drop of more than 4%, and TSMC fell by more than 6%. Previously, due to the typhoon, the Taiwan stock market was suspended for two days. Before the suspension of trading, the Taiwan Weighted Index closed at 22,871 points, up 614 points, an increase of 2.76%.

Analysts believe that due to the landing of Typhoon Hibiscus in Taiwan, the Taiwan stock market stopped trading for two days. During these two days, U.S. stocks and Asia-Pacific markets fell across the board. After the Taiwan stock market resumed trading, there was a compensatory decline, which may be the main reason for the sharp drop in the Taiwan stock index this morning.

It is worth noting that the S&P 500 and Nasdaq closed lower on Thursday, the tech stocks failed to rebound, and the Nasdaq plunged in late trading. This may mean that there is still momentum for a sell-off, which will in turn affect the Asia-Pacific market, including the Taiwan stock market.

Taiwan stocks plummet

The Taiwan stock market has been "closed" for the past two days due to the typhoon, avoiding the global stock market crash, but the aftereffects of the typhoon are still there.

In the morning trading today, the Taiwan stock market was under great pressure. The Taiwan Weighted Index opened with a sharp drop of more than 4%, a drop of nearly 1,000 points. Among them, the Electronic Industry Index and Taiwan 50 Index fell by more than 4%. TSMC fell by more than 6%.

In the past two days, the U.S. stock market has experienced the biggest turmoil this year. On Wednesday, U.S. stocks suffered the most violent sell-off since 2022. Tesla and Google, two of the Big Seven, plummeted after releasing their earnings reports, which greatly weakened investors' confidence in large technology stocks, and the technology sector suffered a critical blow. The S&P 500 fell 2.3% on Wednesday (and fell another 0.51% last night), the largest single-day drop since December 2022. The Nasdaq, which is dominated by technology stocks, performed even worse, closing down 3.6% on Wednesday (and fell another 0.9% last night), the largest single-day drop since October 2022. Previously, the index had not fallen by more than 3% for quite a long time. The Philadelphia Semiconductor Index, which has the highest linkage with the Taiwan stock market, fell more than 5% on Wednesday, directly breaking through the quarterly line, and has retreated more than 15% from its historical high. Technically, it has entered the adjustment zone. This may also be the main reason for the sharp drop in the Taiwan stock market this morning.

Another industry insider said that the Taiwan stock market and the property market are closely related. However, recently, the short-term funds in the property market have begun to tighten, and the impact on the stock market should also be noted. In addition, some securities firms in the Taiwan market have recently begun to raise the pledge interest rate by more than 3%, and the leverage cost has also increased. It is also worth noting the actions of Taiwan's life insurance. In a high-interest environment, the return rate of investment-type insurance policies may not be as high as that of fixed deposits. Therefore, life insurance may also face the possibility of policyholders redeeming funds, resulting in greater funding pressure for life insurance in the future.

How much pressure is there on the US stock market?

The Taiwan stock market is highly correlated with the US stock market, especially with the Philadelphia Semiconductor Index. Nvidia's stock price in the US stock market has fallen below the quarterly line, and TSMC's ADR has also fallen below the quarterly line, so the pressure can be imagined. So, how much pressure does the US stock market have?

The S&P 500 and Nasdaq Composite fell on Thursday, extending losses from the previous session as investors continued to sell off some of the leading technology stocks for 2024. The S&P 500 fell 0.51% to close at 5,399.22, while the Nasdaq fell 0.93% to 17,181.72. But funds are not completely withdrawing from the stock market, and last night, the Russell 2000 rose 1.26%.

Wall Street seems to still believe that the U.S. stock market is currently in a bull market rotation period, not the end of the bull market. This can be seen from the options data. According to Reuters' analysis of Trade Alert data, the average daily options trading volume of NDX has risen to 62,000 contracts per day in one month, a record high. And the cost of NDX is higher than the cost of many options. Some analysts believe that as the stock market fell, the index's options trading volume has increased, partly because investors seek to hedge the risks of technology stocks.

Adam Sarhan, CEO of 50 Park Investments, said there is a changing of the guard on Wall Street, and artificial intelligence stocks that once led the gains are now leading the losses. These movements are not uncommon during the "big rotation" of the bull market. "During the bull market, you will see one sector lead, and then it pauses, adjusts and passes the baton." He said, "Think of it as a relay race to another sector."

Mark Newton, head of technical strategy at Fundstrat, also said that Wednesday's market pullback did not seem to cause any damage to the technical setup of the bull market. The technical side does not bring any problems to worry about. There is nothing that can really stop us from continuing to hold in this market, especially in the small-cap market.

CICC believes that the recent sharp drop in US stocks has greatly dragged down the performance of Tesla and other companies. The market is also very "picky" because of the accumulated gains before, and the manufacturing PMI fell below 50. Once the decline is large, it is easy to form amplified transactions, such as triggering CTA and VIX transactions, which are typical "routines" for each fluctuation. It is also confusing what the US stock market is trading this time. There is not much recession pressure and signs in the United States. If it is a recession transaction, the US Treasury bond interest rate should go down and gold should rise sharply. These two are the assets that benefit the most from the recession. As a result, gold fell sharply, while the US Treasury bond interest rate rose instead.

It is worth mentioning that the risk is often the greatest when you don’t know what the risk is.

Source: China Securities

Statement: All information content of Databao does not constitute investment advice. The stock market is risky and investment should be cautious.

Editor: Lin Lifeng

Proofread by: Wang Chaoquan

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