Back on October 9, we started to talk about Information Technology waking up after three months of technical basing by some in the sector. We wrote the following. 'Technology was led by a few major semiconductors, including NVDA (+4%) and AVGO (+3%). NVDA has been tracing out a bullish continuous inverse head-and-shoulders, while AVGO has been forming a complex double bottom since the middle of June. Both are very close to completing these patterns and possibly breaking out to all-time highs. One concern about jumping back on the semi train is that we are not seeing other stocks completing bases and many are nowhere near highs. That can be rectified, but the strongest industry moves occur when the majority of stocks are participating.' Little did we know how prophetic those last two sentences were and in no way did we expect the obliteration that some of the semis got on October 15. ASML was destroyed, plunging over 16% after providing disappointing 2025 guidance. It was the company's worst day since the pandemic and, prior to that, during the IT wreck in 2002. KLAC plummeted 15%, and LRCX and AMAT both plunged 11%. Volume was huge and it almost felt like a capitulatory selloff. But those usually come after an extended selloff. Because the three largest semis held in there (NVDA, TSM, AVGO), losing only between 2.6% and 4.5%, the major semi ETFs (SOXX, SMH) fell only around 5%. While the major indices lost between 0.7% and 1.4%, NYSE breadth was only slightly negative at -157, this as the selling was concentrated in Information Technology, Energy, Healthcare, and Industrials. In addition, NYSE advancing volume/declining volume was neutral at 50%.

ASML is the leader in photolithography systems used in the manufacturing of semiconductors. Photolithography is the process in which a light source is used to expose circuit patterns from a photo mask onto a semiconductor wafer. The latest technological advances in this segment allow chipmakers to continually increase the number of transistors on the same area of silicon, with lithography historically representing a high portion of the cost of making cutting-edge chips. ASML outsources the manufacturing of most of its parts, acting like an assembler. ASML’s main clients are TSMC, Samsung, and Intel.

The Federal Reserve's favorite inflation indicator, the PCE Price Index, will be released by the BEA this morning. PCE differs from the better-known Consumer Price Index because its composition is changed more frequently and it is thus quicker to reflect the impact of real-time pricing fluctuations. In the most recent report, through July, PCE inflation was reported at 2.5% year over year. Core PCE, which removes volatile food and energy prices, rose at a rate of 2.6% in the latest month. Our PCE forecasts are for 2.3% for the headline number and 2.8% for the core reading. Overall, inflation in this cycle peaked in summer 2022 and has been on a fairly consistent downward trek since then. We track 20 inflation measures on a monthly basis. On average, they are indicating that prices are rising at a 2.25% rate year over year, down from 2.70% a month ago. The numbers are volatile and are distorted somewhat by ultra-low readings within the Producer Price Intermediate Goods category, which may well be pointing to easing prices across the inflation spectrum in the months ahead. Focusing on core, our reading is 2.47%, essentially level month over month. That's propped up by sticky prices on shelter and transportation (the Sticky Price Core CPI Index reading is currently 4.1%). Looking ahead, investors are expecting that the Federal Reserve's series of rate hikes ultimately will tame inflation, with the three-year forward expectation rate at 2.17%.

ASML is the leader in photolithography systems used in the manufacturing of semiconductors. Photolithography is the process in which a light source is used to expose circuit patterns from a photo mask onto a semiconductor wafer. The latest technological advances in this segment allow chipmakers to continually increase the number of transistors on the same area of silicon, with lithography historically representing a high portion of the cost of making cutting-edge chips. ASML outsources the manufacturing of most of its parts, acting like an assembler. ASML’s main clients are TSMC, Samsung, and Intel.