Tokyo stocks faced selling pressure in heavyweight shares on May 19, with the benchmark Nikkei Stock Average falling 265 yen from the previous day to close at 60,550 yen, marking a fourth consecutive decline. Although the index opened higher tracking futures gains, it quickly reversed course into negative territory. While advancing issues numbered around 1,100 to account for over 70% of the Prime Market, the overall market tone remained subdued. Overnight in the U.S. stock market, selling pressure intensified on semiconductor shares, with Micron Technology , Applied Materials , and SanDisk all dropping over 5%. NVIDIA also extended losses ahead of its upcoming earnings report, heightening downside caution. The Philadelphia Semiconductor Index (SOX) shed 2.5% to break below its 5-day moving average, dampening sentiment for tech shares in Tokyo.

Most notably, Kioxia Holdings <285A>, which closed at its daily limit-high a day earlier, opened higher but struggled for momentum before reversing sharply from mid-morning, dampening investor sentiment. The semiconductor sector appears to have entered a short-term correction ahead of NVIDIA's crucial earnings report. Although NVIDIA's results and May-July guidance are projected to be robust, market participants remain cautious, with the short-term momentum trade showing signs of a reversal despite underlying growth potential.

Amid these developments, market participants are increasingly advocating sector rotation, shifting capital from AI and semiconductor names to domestic value stocks to mitigate risk. This strategy is already gaining traction among retail investors. Major online brokerages report that margin buying balances have expanded at an unprecedented pace since early May, driven primarily by contrarian bets on oversold value stocks.

However, while market conditions supported this shift on May 19, overall momentum remained weak due to a lack of compelling buyers. Within domestic sectors, megabanks and life insurers strengthened in the rising interest rate environment, but real estate shares remained highly volatile on fears of a luxury condominium bubble collapse in waterfront areas. This sector faces headwinds from rising rates, dwindling inbound capital stemming from tax revisions, and tighter regulations on property flipping. Shares of Sumitomo Realty & Development Co.,Ltd. <8830> fell despite solid earnings, compounding market concerns. A slowdown in real estate could also impact adjacent sectors such as construction and railways, while banks face potential credit risks and non-performing loans in the longer term despite short-term interest rate benefits.

Japan's preliminary January-March GDP expanded by an annualized 2.1%, beating market forecasts for a second consecutive quarter of positive growth, but the data failed to lift broader sentiment. If the rotation into lagging domestic names stumbles, the broader market could test lower levels. A break below the critical 60,000 yen threshold for the Nikkei average would also pierce its technically significant 25-day moving average. Although TOPIX edged higher on May 19, an adjustment in the NT ratio could cap its upside, suggesting increased caution is warranted across the broader market.

In the near term, market interest is focusing on resilient stocks forming technical plateaus after digesting sell orders. Key names include point-site operator CERES INC. <3696> and AI business provider User Local,Inc. <3984>. Within the AI and tech space, low-to-mid-priced stocks like SIOS Corporation <3744> are drawing attention, alongside quantum computing player TerraSky Co.,Ltd <3915> and painting-app developer ibis inc. <9343>.

Looking ahead to May 20, the primary bond market will watch an auction of 20-year Japanese government bonds (JGBs). Domestically, April convenience store sales data, the Bank of Japan's May Bond Market Survey, and April inbound visitor numbers are due out. Internationally, key events include China's May loan prime rate decision, Bank Indonesia's policy rate announcement, Eurozone April consumer price data (HICP), and the UK April consumer price index (CPI). In the United States, the Federal Open Market Committee (FOMC) will release minutes from its April 28-29 meeting, alongside a 20-year Treasury auction and a speech by Federal Reserve Governor Michael Barr. On the corporate front, NVIDIA's February-April earnings report remains the market's primary focus.

Source: MINKABU PRESS

*Translated by generative AI. Click here for the original article.