[Feature: Market Wrap] Chips Lifted the Rally; Chips Led It Back Down

The first trading day of the second half — and of Q3 — is behind us. What made New York close its best quarter since 2020 the day before (June 30) was semiconductors; on day one (July 1), those same semiconductors led the drop and pulled the indices down. Micron and Sandisk fell in the 8% range, Nvidia in the 3% range. Korea repeated the same chip profit-taking, and with a high exchange rate on top, the KOSPI shed more than 2%. If yesterday risk assets and the tightening signal diverged, on the first day risk appetite was the first to catch its breath — and Chair Warsh's "prices are too high" was laid over it. Whether one session's pullback is the signal of a rotation or a strong quarter merely being digested, of course, is still too early to call.

🇺🇸 US — The Engine That Lifted the Rally Also Led It Back

Four major indices (July 1 close)

• Dow 52,305.24 (-0.03%) — communications and financials defended the index, so the loss stayed slight
• S&P 500 -0.2% (about 7,484)
• Nasdaq -0.6% (about 26,040) — semiconductor weakness pressed the index
• Russell 2000 3,012.59 (-0.39%)

What moved — It opened Q3 with early strength, then reversed intraday to close lower. The epicenter was semiconductors. Micron and Sandisk, which had led the rally through the day before, dropped in the 8% range and Nvidia in the 3% range, driving the pullback. It was a day when the warning that "AI is overheated and overleveraged" raised its head again. That the index itself fell only slightly was because communications and financials cushioned the drop. Whether the chips that flipped in a single day mark the start of a rotation or a strong quarter being digested is something the days after tonight's jobs data will decide.

Macro — the signals split

• ISM Manufacturing PMI 53.3 (prior 54.0, slightly below the ~53.6 consensus) — a sixth straight month of expansion, but the Prices Index plunged from 82.1 to 73 (its biggest drop since July 2022). At 73 it is still above 50, so raw-material prices are still rising — it's the pace of that rise that has sharply broken.
• ADP private payrolls +98K (below the ~+118K consensus) — education and health led, while leisure and hospitality stayed weak for a sixth month: "a hiring slowdown."
• 10-year around 4.47% (up from 4.38% the prior day) · dollar index about 101 (near a 13–15-month high) · VIX held in the low-16s, a low-volatility regime.

Where the asymmetry sits — The data pointed both ways at once. The sharp deceleration in ISM prices and the slowdown in ADP hiring lean toward "the pace of inflation and jobs is cooling," yet bonds pushed yields up. The reason is Chair Warsh. At his debut on the Sintra ECB forum panel, he pinned it down: "prices are too high," "we are in the price-stability business," and anyone expecting the Fed to tolerate inflation above 2% "would be disappointed." The decision on whether to hike comes in "four weeks" — pointing at the late-July FOMC. The signal that the Fed won't be the first to back off, even as data cools, pushed both policy expectations and the term premium higher, and that rise in yields pressed the valuations of semiconductors — assets priced on long-run growth.

🇰🇷 Korea — Foreigners Sold Large Caps; Retail Bought Growth. The Market Split.

The US chip profit-taking repeated here, but the Korean market didn't move in one direction. Large caps slid while smaller-cap growth names held.

Indices (July 1 close)

• KOSPI 8,303.41 (-2.04%, -173.07 pts) — pushed down intraday to close around the 8,300 line
• KOSDAQ up in the 1% range — strength in semiconductor-equipment and pharma/growth names (the KOSDAQ's 30th anniversary)

Flows — foreigners, a 9th straight selling session

• KOSPI: foreigners net-sold 1.7029 trillion won, "sell" for nine sessions running. Retail and institutions absorbed it but fell short of defending the index.
• KRW/USD around 1,555 — again clearing its highest level since the global financial crisis. Avoiding FX losses is the core trigger for the foreign selling.
• First-half foreign net selling totaled 149 trillion won (a record) — June alone was 48.6 trillion, and June 29's 7.7 trillion was a single-day record.

What split, and why — Three layers pressed the KOSPI down. US-driven chip profit-taking dragged the large-cap semiconductors lower, the high 1,555 exchange rate spurred foreigners to avoid FX losses, and fears of a National Pension Service rebalancing weighed on large caps. The KOSDAQ, by contrast, was pulled up by chip-equipment names and pharma — when foreign-heavy large caps wobble on flows, the retail-driven small- and mid-cap growth names move the other way. Some outlets read the first half's 149 trillion won of foreign selling as "chip-centered profit-taking," not "crisis liquidation." The absolute figure is a record, but foreign holdings of Samsung Electronics and SK Hynix fell 11% and 8% from the start of the year — meaning it looks more like a sector-specific unwind. Still, that's not a reading to push as the only one — foreigners' share of KOSPI ownership actually rose, despite the selling, from 36.65% at the start of the year to 40.93%, which could be a valuation illusion from surging chip prices, or the active exit that nine straight sessions of selling implies. The two readings still coexist.

📅 Today's Watch Points (July 2) — A Double Gate of Verification

Today, the key inflation and jobs data of the US and Korea land on the same day.

• 🇺🇸 June jobs report (tonight, 21:30 KST) — the week's biggest event. Consensus is +100–115K in new jobs (with a wide estimate range of 35K–200K), and the unemployment rate is seen holding at 4.3%. With the prior month (May) at +172K, well above consensus, the bar is high. Because of Independence Day (markets closed Friday July 3), it's been pulled forward from the usual Friday to Thursday. Strong, and the market tilts toward "a hike this year"; weak, and it tilts toward easing pressure — connected straight to Warsh's "decision in four weeks."
• 🇺🇸 A data overload — the same day brings the final Q1 GDP, May PCE inflation, May durable-goods orders, and weekly jobless claims. A noisy day around the jobs print.
• 🇰🇷 June CPI (today, Statistics Korea) — the prior May reading was +3.1%. Whether the high 1,555 exchange rate lifts import prices and passes through to inflation is the variable in the Bank of Korea's math. The policy rate is held at 2.5% (an 8th straight hold); the next rate meeting is July 16.

Continuity — the market that pulled back yesterday takes its direction today from two data points. ISM prices and ADP pointed to "the cooling side," but the confirmation is tonight's jobs report's to give. If the number is strong, Warsh's hawkishness hardens further and the chip pullback can continue; if it's weak, weight shifts to the view that the first day's drop was overdone.

🗓️ Key Dates This Month

One-Line Close

What lifted it was chips, and what pulled it back on day one was chips too. That bond yields rose even as the data signaled cooling is because Warsh said first that "the hike will be discussed in four weeks." A single number from tonight's jobs report becomes the first scale to weigh those four weeks.