Major indices faced concentrated pressure at the open but saw a notable bounce in early afternoon.  The Dow Jones is lower but remains the best performing index both for the day and the week.

There is rotational buying in the market with four sectors in the green; however, action is not as strong as yesterday. Netflix (NFLX) is adding pressure to the Communication Services (XLC), falling to its lowest level in nearly two years after its slim Q2 beat. Alphabet (GOOG) and Meta (META) are also dragging the sector amid concerns about cheaper competition from Chinese AI models.

Chips continue their retreat as the news of Kimi K3, new AI model built by Chinese startup Moonshot, has been creating concerns whether tech giants have been spending too much on AI hardware.

Economic Data

Housing starts surged +19% m/m in June, the biggest monthly increase since May 2023, to 1.427mn SAAR. This was driven almost entirely by multifamily starts which soared the most since January 2021.

The preliminary reading of University of Michigan Consumer Sentiment for July increased nearly 5 points to 54.4, the highest reading since February. 1-year inflation expectations declined to 4.2% from 4.6% in June while 5-10 year expectations held steady at 3.3%.

Kimi K3

The fear that China is surpassing the US is the panic excuse again today. We believe this is the kind of story that pops when bears control the narrative. This shall pass as it is not grounded in fundamentals. Artificial Analysis, a renowned third-party validator of LLMs, agrees this is a tempest in a teapot (again).

In addition, Kimi K3 is dramatically more expensive than other models in its own category.

The market has noticed these flaws with oversold technology names in the top ten movers list this afternoon.

We are going to be opportunistic; this portion of selling is irrational pessimism.