“When you win, you don’t get carried away. But if you go step by step, with confidence, you can go far.” – Diego Maradona

Good evening,

In recent weeks, investors have been wowed by what many have described as a memory-chip gold rush. That golden glow was not in particular evidence this week, but both the S&P 500 and Nasdaq Composite managed to close out the week higher anyway.

It wasn’t just memory chips that struggled this week. Momentum stocks did as well, as shown by the Momentum ETF MTUM0.18% , which by Wednesday’s close had fallen roughly 8% over the previous five days. In both cases, Fundstrat Head of Research Tom Lee viewed the selloff as “overdone,” noting historical precedents in such major dips suggest strong forward returns. 

Fundstrat’s data-science team had previously analyzed this pattern with dips in semiconductor stocks, and this week they found a similar trend in momentum stocks. Looking at declines of 7% or more in MTUM0.18%  since 2002, the team found positive median returns and win ratios looking one, three, and six months out. The trend was stronger when excluding bear markets: After such declines, stocks were up one, three, and six months later 71%, 96%, and 100% of the time, respectively. This can be seen in our Chart of the Week.

In the last three years, the gains six months out after such declines have been particularly strong. “So, in our view, this pullback in momentum is buyable, and this applies to semis, memory, and tech broadly,” Lee asserted. Later-week action suggests that this pattern might be repeating – momentum, memory, and semi stocks all ultimately notched weekly gains.

While memory and momentum stocks saw choppiness this week, other sectors did better – and to Head of Technical Strategy Mark Newton, this is good for stocks in general. “We have seen an encouraging amount of rotation into really good groups that I think are very helpful for the market to hold up,” he told us at our weekly huddle, pointing out that “financial, industrials, and healthcare have all hit new all-time highs in the last week […] In the last month, we’ve seen substantial outperformance in these sectors.”

To him this goes a long way to explaining why “even though tech has actually been down almost 2% in the last month, the market has held up towards all-time highs.” 

As for tech, Newton noted that the impact of the tech pullback has been mitigated by the gradual pace, with subsectors consolidating “one by one,” starting with software last year, followed later by the Magnificent Seven and then most recently memory and semiconductor stocks. That has given time for the earlier declines to flatten out. In fact, “Mag Seven [has] come back to life and started doing better relative to the equal-weighted S&P,” he noted.

Elsewhere

The International Energy Agency projected the first yearly decline in global oil demand since the days of the COVID-19 pandemic. The estimated decline for 2026 will average about 1 million barrels per day, largely attributed to the shipping disruptions caused by the Iran war. Importantly, the IEA estimate assumes that a sustained ceasefire and gradual re-opening of the Strait of Hormuz and a subsequent gradual recovery in shipping will take place before the end of the year.

The No. 2 executive at OpenAI, Fidji Simo, announced she will step down from her position for medical reasons. Simo, who as chief executive of AGI deployment was second only to Sam Altman in the company’s hierarchy, had been on leave due to her ongoing struggle with postural tachycardia syndrome, and she cited a far slower-than-expected pace of recovery in her decision not to return. The current plans call for her responsibilities to be divided between President Greg Brockman, CFO Sarah Friar, and Chief Strategy Officer Jason Kwon.

Apple announced a U.S. chipmaking deal with Broadcom expected to be valued at $30 billion or more. The deal calls for a major expansion of Broadcom’s fabrication facilities in Colorado, where Apple hopes as many as 15 billion network-communication chips or ASICs for its devices will be made. Additional details, including a timeline, were not disclosed. 

Democrats’ chances of flipping the Maine Senate seat currently held by Susan Collins appeared to plummet this week as controversy over the party’s populist nominee, Graham Platner, caused him to drop out of the race. Platner had survived an earlier controversy over a tattoo of a white-supremacist symbol, but more recently, a woman – Jenny Racicot – came forward to publicly and openly accuse him of sexually assaulting her in her home in 2021. A special nominating convention is reportedly scheduled so state Democrats can choose a replacement candidate. 

Microsoft announced a 20 percent workforce reduction at its struggling Xbox division, cutting 3,200 jobs. The tech giant also announced plans to divest five game-development studios, including DoubleFine, creator of the cult favorite Psychonauts franchise, and Ninja Theory, creator of the Hellblade series of games. In unrelated news, the chief executive of the Xbox division, Asha Sharma, was named to a Federal Reserve task force convened by new Chair Kevin Warsh to research the economic impact of artificial intelligence and related technologies on productivity and jobs.

And finally: Apartment buildings, offices, and retail businesses around New York City’s Grand Central Terminal had to be evacuated for one to two days this week after Pfizer’s former headquarters was found to be at risk of collapsing. The building had been acquired by a developer and was in the process of being converted into residences, and an initial investigation suggests that the problem was caused by inadequate bracing or reinforcing of key beams supporting the addition of 15 new – and wider – floors to the original building, cantilevered over the original building footprint. The building in question was about a 15-minute walk from Fundstrat’s Midtown offices.