News and analysis

Dutch-rooted lithographic equipment maker ASML has kicked off a corrective wave of decline in European and Asian markets on July 17, which quickly echoed in the chip segment on Wall Street as well. The EU technology sub-index dropped by 4.5% marking the most substantial one-time fall for the last 18 months and the U.S. tech-heavy Nasdaq Composite index plummeted by 2.75% to challenge the area below 18,000 technical support, which was an all-time resistance level before July. American Depositary Receipts (ADRs) of ASML suddenly shed almost 12% of its market value, sparking concerns of a massive rotation away from tech stocks to industrials and smaller caps.

It was amazing that the Dow Jones index (DJIA) closed above 41,000 for the first time ever (228 points, or 0.6%, of daily rise) at the very moment when the broader S&P 500 and its AI-related flagships including NVIDIA lost their upside steam. This fact emphasizes the reallocation of money, and not the outflow from equities to the cash, as it happens in times of crisis or stock crashes. Nominally, ASML posted quite decent second quarter figures on both equity per share (EPS) of $4.01 ($0.02 better than consensus forecast) and somewhat lower revenue of $6.24 billion vs the average expectations of $6.49 billion. Yet, the weak point by this giant chip-making equipment manufacturer was its disappointing forward guidance, with supposed Q3 sales between $6.70 billion and $7.30 billion, compared to higher Wall Street expert pool estimates of $8.32 billion. At the same time, ASML's stock price was clearly overheated after rallying nearly 25% during the recent three months, and now it only returned to its levels of late May. Thus, downstairs sliding is fast, but it's not a disaster yet.

A double-digit drop in ASML shares could go rather smoothly for other AI leaders, if not the synchronous news came from U.S. government sources, as whistleblowers said regulators might consider more severe trade restrictions in order to suppress China's access to advanced chip know-hows. If firms such as ASML, NVIDIA and AMD continue to send advanced semiconductor decisions to Asian markets, the White House subordinates may impose a measure called FDPR (the foreign direct product rule) to control on foreign-made products, which use even the tiniest amount of U.S.-licensed technology.

This kind of threat could be how the U.S. wants to push European and Japanese companies to restrict their contacts with Chinese firms, and the spectre of a trade war is here again, inside investing minds. Again, the sectoral leaders like NVIDIA and AMD have already learned to bypass most of the former restrictions. However, in combination with moderate demand concerns and covering a big distance in a short time by hyping AI stocks, this prompted an immediate profit taking, so that NVIDIA and Micron (MU) lost nearly 6.5%, Broadcom (AVGO) dropped by 8%, while AMD corrected by more than 10% in one trading session.

Further price developments in the nearest couple of days will show how deep the correction may go, but the major fundamental conception suggests that too rapid decline is typically temporary and short-lived on such an advanced stage of the lasting uptrend, as it has the solid AI-related nature.

Johnson & Johnson's earnings beat consensus quarterly estimates by $0.10 per share, compared to Wall Street pool average forecast of $2.72. A hygienic product giant reported its Q2 sales at $22.45 billion, so that the number came out barely above analyst expectations of $22.34 billion, yet marking a nearly $1 billion (+5%) surplus vs the median sales for the previous three quarters. Actually, a great one-time improvement after many months of stagnation, even though fixing a 12% fall YoY in terms of revenue. From my point of view, the J&J business became more effective, as it provided almost the same income on a lower gross money basis, which means the ability to generate higher marginality. The latest report did not provide an immediate upside momentum for the stock. J&J share price even lost a few tenths of a percent in the pre-market trading today. Yet, the first market's response did not defy the recent technical bounce when J&J drifted off the $145 support area.

The price is still trying to consolidate above $150, which means growing confidence in the company's recovery so that the investing crowd presumably keeps in mind at least a $160 to $165 range as the short-term target area. If only the stock would close today above $150, I would be ready to buy and hold it. I personally feel the fundamental environment is now healthier. The company's management does not say the mountains are trembling, but instead it sees financial 2024 earnings at $10.05 per share vs the analyst average forecast of $10.01, according to Refinitive. It now expects total 2024 sales of $89.2 billion to $89.6 billion, vs prior forecast of $88.7 billion to $89.1 billion. Only the segment of medical technology business by J&J rose 2.2% to $7.96 billion from $7.79 billion ⁠YoY, which was less than consensus bets of $8.17 billion. With a trend of re-directing some part of money flows from high-flying AI-related megacaps led by NVIDIA to midcaps, such a small but positive revision may be enough to attract more investors' attention. J&J also announced a cash dividend of $1.24 per share on the company's common stock, payable on September 10, the ex-dividend date is August 27.

If one exclude a contribution of the COVID-19 vaccine, which is out of time, J&J's operational sales even grew by 7%, which may be attributed to the advancement of its product pipeline, including TREMFYA (to treat adults with psoriasis), RYBREVANT (a first-line treatment for non-small cell lung cancer), and the VARIPULSE platform (showing at least 12-month freedom from atrial arrhythmia recurrence in approximately 80% of the patients). The system, integrating a multi electrode catheter, a multi-channel pulsed field ablation generator and a cardiac mapping system, has been approved in January in Japan and partially in Europe, still waiting an approval by the US Food and Drug Administration (FDA), remaining as currently investigational for North America patients. J&J has more space upside in this regard, meaning better prospects in innovative oncology and immunology.

Of course, robust sales of its major drugs like blood cancer therapy Darzalex and psoriasis drug Stelara are always here. Stelara sales added 3.1% to $2.89 billion YoY, while Darzalex sales jumped as much as 18.4% to $2.88 billion. Stelara sales of more than $10 billion are expected in 2024, yet some analysts expect the figure may fall to $7 billion in 2025, as several close copy drugs are going to be launched by J&J rivals. To smooth the effect, the company is finalizing deals to make favourable U.S. insurance coverage for Stelara soon. A cancer cell therapy, named Carvykti, got sales of $186 million, up 60% YoY, even being watched below the $200 million analyst consensus prediction, limited only by tight supply, according to J&J. If so, I don't see large weaknesses in the company's drug line-up.

Ren (REN) is adding 10.7% to $0.0505 this week, slightly retreating from its $0.0513 peak on Tuesday. Most importantly, the token has returned to the support at $0.0500. It is now attempting to hold above this level and possibly approach the resistance of the downtrend at $0.0595. If this level is surpassed, the token will target $0.0750. This optimistic scenario is supported by Bitcoin (BTC), which is targeting $70,000. A Bitcoin rally may help REN climb by another 16.0% to $0.0595. If BTC continues above its all-time high, REN is likely to continue rising, breaking through the downtrend resistance.

Cosmos (ATOM) is rising by 1.5% to $6.310 this week, though it was 5.0% higher at $6.605 on Tuesday. The token retreated after a cautious breakthrough of the downtrend resistance. This could be positive for the upside scenario if prices hold above $6.25. This may push prices further up towards $7.00, or by 18.5%.

Bitcoin (BTC) is also rising above the support at $60,000 with a perspective to climb to $70,000, which could support ATOM as well. Additionally, Cosmos network developers have announced that its decentralized VPN, which uses ATOM as a native token, is almost completed. This development is also positive for ATOM's prices.