Danske Bank’s research team said Friday’s equity decline was concentrated in US semiconductors and large-cap technology after global tech rose about 50% in roughly two months. The bank said the move was not primarily driven by Iran-related news or US jobs data, and pointed out that more industries closed higher than lower even as headline US indices fell. US semiconductors dropped 8.2%, and the group represents about 15% of the S&P 500, underscoring the narrow nature of the sell-off.
Volatility picked up, with the VIX at 21, while the Nasdaq led broader benchmarks lower and small caps outperformed, indicating dispersion rather than a broad risk-off shift. Oil fell on Friday, and the Iran headlines arrived later in the session. Into the new week, the team said Asia opened sharply lower, particularly in markets where tech has driven year-to-date gains, while European futures slipped and US futures, especially in tech, were higher; it added that an oil rise of 3% would not alter AI build-out expectations.
Healthy Correction and Sector Rotation
We view last Friday’s sharp selloff as a healthy and expected correction, not a change in the market’s direction. The move was heavily concentrated in large-cap tech, particularly semiconductors, which have seen a massive run-up in recent months. The CBOE Volatility Index (VIX) jumping to 21 signals a temporary rise in fear, creating opportunities for traders.
This pullback is a textbook case of profit-taking after a period of extreme gains. For instance, the SOX semiconductor index has rallied nearly 50% in the last few months, a pace that is simply unsustainable without occasional pullbacks to reset. We see the fundamental story around AI infrastructure and record earnings growth as completely unchanged by this short-term price action.
Opportunities in Options and Covered Calls
Given the spike in implied volatility, we believe selling options premium is the most prudent strategy right now. Consider selling cash-secured puts or put credit spreads on tech indices like the Nasdaq-100 or specific semiconductor ETFs. This approach allows you to collect premium while defining a level where you would be comfortable owning these assets at a lower price.
The market internals support this view, as small caps outperformed during the selloff and more sectors advanced than declined. This indicates a rotation is happening, not a broad flight from risk. Historically, bull markets often feature sharp, sector-specific corrections of 5-10% that shake out weak hands before the next leg higher.
Therefore, we are not buying protective puts at these elevated prices. Instead, for those holding long positions in winning tech names, this is a prime opportunity to sell covered calls against those shares. This strategy takes advantage of the higher volatility to generate income and effectively lower the cost basis of the core holding.
