Capital Rotation at Work: Semiconductor Stocks Post a Second Straight Decline

Market Overview

On Thursday, ahead of the highly anticipated U.S. Nonfarm Payrolls report, U.S. equities delivered a mixed performance. Continued pullbacks in semiconductor stocks weighed on the Nasdaq, bringing its three-day rally to an end. Meanwhile, the Dow Jones Industrial Average and the S&P 500 edged higher as capital rotated toward cyclical sectors.

At the stock level, the semiconductor index recorded a second consecutive daily decline. NVIDIA fell more than 2%, while SanDisk retreated nearly 5% after a sharp post-earnings rally driven by its third-quarter guidance. Apple extended its losing streak to seven sessions. In contrast, Google rose over 1%, marking another record high and further widening its market capitalization lead over Apple.

Sector volatility was largely driven by policy-related remarks from Donald Trump. After previously threatening to restrict corporate share buybacks, Trump shifted focus and hinted at a 50% increase in the 2027 defense budget to USD 1.5 trillion. This fueled a strong rebound in defense stocks, with Lockheed Martin gaining more than 4%, while drone-related names such as Kratos surged over 10%.

U.S.-listed Chinese equities broadly rebounded, rising more than 1% and snapping a multi-day losing streak. Alibaba climbed over 5%. Baidu, despite announcing a planned IPO spinoff of its Kunlun AI chip unit, fell nearly 4% as profit-taking pressures emerged.

From a macro and FX perspective, U.S. Treasury prices retreated, with yields extending their rebound in response to labor market data. The U.S. Dollar Index strengthened further, approaching the 99.0 level intraday and reaching a four-week high. Offshore RMB rebounded after hitting a year-to-date low, reclaiming the 7.0 level. Cryptocurrencies remained highly volatile, with Bitcoin briefly dipping below USD 90,000, giving back part of its earlier gains.

In commodities, crude oil prices rebounded sharply, surging more than 4% at one point after U.S. inventory data showed a larger-than-expected drawdown. Precious metals saw downside momentum ease. Silver and platinum recovered roughly 70% of their earlier losses after plunging nearly 5% in early trading, while gold reversed intraday losses of more than 1% to close higher. Meanwhile, LME nickel fell over 4% amid post-rally consolidation, and LME copper extended a mild pullback.

Key Themes to Watch

Labor Market Shows Limited Near-Term Stress

Initial jobless claims in the U.S. came in at 208,000 last week, slightly higher than the prior reading of 199,000 but still below market expectations of 212,000, remaining near historical lows. Continuing claims rose by 56,000 to 1.914 million, suggesting that while layoffs remain limited, the duration of unemployment is increasing and longer-term job-finding risks are gradually building.

Trump Signals USD 200 Billion in Agency MBS Purchases

On Thursday, Trump stated that he is “directing my representatives” to purchase USD 200 billion in mortgage-backed securities, arguing that the move would help lower interest rates and monthly mortgage payments. The two government-sponsored enterprises, Fannie Mae and Freddie Mac, are currently well-capitalized.

Separately, media reports indicate that the White House is drafting an executive order aimed at addressing public concerns over the cost of living. Measures under consideration include allowing households to tap retirement savings and education accounts to fund down payments for home purchases.

Key Events to Monitor (GMT+8)

21:30 US

• U.S. December Unemployment Rate

• U.S. December Nonfarm Payrolls (seasonally adjusted, thousands)

• U.S. December Average Hourly Earnings, YoY

• U.S. October Housing Starts, annualized (thousands)

• U.S. October Building Permits, annualized (thousands)

23:00 US

• U.S. January Preliminary One-Year Inflation Expectations

• U.S. January Preliminary University of Michigan Consumer Sentiment Index

• 2026 FOMC voter and Minneapolis Fed President Neel Kashkari delivers opening remarks and participates in an informal discussion at a Fed-hosted online event

Overnight

02:35 US

• 2027 FOMC voter and Richmond Fed President Thomas Barkin speaks on the economic outlook