US equities rose again, with the S&P 500 up 0.19% and the NASDAQ up 0.10%, both closing at fresh records. The Philadelphia semiconductor index gained 2.59% and extended its year-to-date rise to 70%, while energy shares also climbed.
Market breadth was weaker, with most S&P 500 stocks lower and the Mag-7 down 0.26%. In Europe, the Stoxx 600 rose 0.11%, the FTSE 100 rose 0.36% and the Dax rose 0.05%, while France’s CAC 40 fell 0.69% amid declines in luxury retail names.
Asia Markets React To Policy Headlines
In Asia, South Korea’s KOSPI dropped as much as 5.1% after remarks about a proposed “national dividend” linked to AI industry profits. The index later trimmed the fall to 2.90% after clarification that the idea involved using “excess tax revenue” rather than a new windfall corporate tax.
Samsung fell 3.4% and NASDAQ futures fell 0.34%, lagging S&P 500 futures, down 0.14%. STOXX 50 futures fell 0.61%, while the S&P/ASX 200 fell 0.24%, the CSI fell 0.31% and the Shanghai Composite fell 0.40%, as the Nikkei rose 0.62% and the Hang Seng rose 0.30%.
We are seeing the S&P 500 make new records, but this strength is overwhelmingly concentrated in chip stocks and energy. This narrow leadership, where most stocks are not participating, makes the rally fragile. Traders should consider using options to protect profits in the semiconductor sector, such as buying puts on ETFs that are up an astonishing 70% year-to-date.
The high valuations in technology, with some leading AI chipmakers now trading at forward price-to-earnings ratios exceeding 60, are a cause for concern. We saw a similar dynamic during the AI-driven market of 2025, where the S&P 500 Advance-Decline line failed to confirm new index highs, often signaling a future downturn. This divergence between the index and its underlying components suggests the broader market is weaker than it appears.
Positioning For A Volatility Regime Shift
The news from South Korea about a potential “national dividend” from AI profits has directly weakened tech sentiment, causing NASDAQ futures to underperform. This highlights a new political risk for the sector that is not yet fully priced in by the market. A pairs trade, going short on the NASDAQ 100 while going long on the more diversified S&P 500, could hedge against this specific vulnerability.
Market complacency is high, with the VIX index recently trading near 13, a level that indicates very little fear among investors. We believe this presents a cheap opportunity to buy protection against unexpected shocks. Purchasing VIX call options or using long straddles on key indices are cost-effective strategies for positioning against a potential increase in market volatility.
Energy stocks are providing a non-tech source of strength, with the sector climbing over 15% in the last quarter on the back of tightening global supply forecasts. To diversify away from the crowded tech trade, traders could sell cash-secured puts on major energy ETFs. This strategy allows for collecting premium while setting a potentially more attractive entry point should there be a market rotation.
