The Philadelphia Semiconductor Index surged over 6%! U.S. chip stocks may post their best single-day performance in a year, with large-scale hedging in the options market.

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U.S. stocks staged a rebound as dip-buying funds entered the market. Stocks rose amid renewed enthusiasm for artificial intelligence and expectations that a robust economy will continue to fuel growth for American companies.

Led by technology stocks, the S&P 500 index extended its rebound from lows triggered by war. The Nasdaq 100 index rose about 2%, and the chipmaker sector is on track for its best day in over a year. The Philadelphia Semiconductor Index at one point surged more than 6%.

According to Xinhua News Agency, Israeli Prime Minister Netanyahu announced on the 8th during a televised address that attacks on Iran are currently "paused," but if Iran resumes attacks on Israel, Israel will respond with force. The easing situation in the Middle East and narrowing oil price gains also boosted market sentiment.

Meanwhile, the latest New York Fed survey shows that job seeker outlook in the U.S. has worsened, inflation expectations have eased slightly, and family financial prospects hit a four-year low. This survey somewhat mitigates the shock brought to the market by last week's unexpectedly strong nonfarm payroll report.

Many institutions remain bullish, citing strong AI fundamentals

Regarding last Friday’s sell-off triggered by position adjustments, Morgan Stanley strategist Mike Wilson considers this a "healthy reset." He remains optimistic due to corporate earnings growth and resilient economic data. He said:

“It’s rare for the market to keep rising at such a fast, one-sided pace since the March low. A pullback is almost inevitable, and if this bull market is to continue to year-end, a correction is actually healthy. Our baseline scenario remains the S&P 500 reaching 8,000 points by year-end.”

His optimism is echoed by Citi strategistScott Chronert, who, after a "sharp upgrade" in profit expectations, raised their S&P 500 year-end targetfrom 7,700 to 8,100 points.

Mark Haefele of UBS Global Wealth Management said:

“We expect investors will not lose confidence in the prospects for artificial intelligence. Although tech stocks have recently been pressured by market doubts about whether they can meet high expectations, corporate fundamentals remain strong.”

Haefele also pointed out that the market continues to overestimate the hawkishness of major central banks. He believes the risk of Fed rate hikes remains low. Though job growth is still strong, slower wage increases might reassure policymakers.

After last Friday’s strong nonfarm report, market focus returned to inflation data. The May Consumer Price Index (CPI), releasing Wednesday, is expected to rise 4.2% year-over-year, the fastest pace in more than three years. However, growth in core CPI is expected to ease slightly month-on-month, which may send a positive signal to Fed officials.

According to Mark Hackett, as investors digest inflation data and a series of high-profile IPOs and equity offerings, it remains to be seen whether the market can maintain resilience. He believes this will be an important test of whether investors are shifting funds into new opportunities or becoming more cautious toward risk assets.

Chip stock rebound triggers large-scale hedging by traders

In the chip sector, traders have shown the strategy of "selectively going long specific stocks, and shorting the whole sector."

On Monday morning, the volume of put options (Puts) for VanEck Semiconductor ETF (SMH) exceeded call options (Calls) by more than twofold. More than half of total premiums were related to put options. Among approximately $217 million in traded options premium, over 10% concentrated in puts expiring August 21 with a $550 strike price. This strike is about 7% below current prices, indicating traders remain skeptical despite the ETF’s over 5% rebound that day.

Despite the generally bearish sentiment towards the sector, traders are still actively betting on potential winners. For example, in Marvell’s options trading, calls outnumbered puts three to one, accounting for over 80% of total premium. The company will be added to the S&P 500 Index on June 22.

Meanwhile, news-driven factors also ignited enthusiasm for Intel’s stock. According to reports, Alphabet has commissioned Intel to produce three million custom AI chips.

On Monday morning, Intel’s options volume was nearly double the daily average, with more than 70% being call options. Calls traded at or above ask prices were nearly three times the number of puts, with over 60% belonging to contracts at least 5% out-of-the-money, showing investors’ strong expectation for further gains.

Emerging AI chip company Cerebras also saw strong demand, with options premiums exceeding $50 million, the vast majority concentrated in calls. All top ten hot contracts by traded premium were calls, and over 60% had strike prices more than 5% above the current stock price, indicating high market speculation.

Bespoke co-founder Paul Hickey said:

“Even for volatile indices like the Philadelphia Semiconductor Index, the past two weeks have been crazy. After previous surges and recent plunges, I don't think it will keep dropping sharply right away. Before July 4, America’s Independence Day, the market may see more 'firework action.'”

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