[11/2 Stock Market Conditions] Nikkei Average continues to fall, 'selection' in AI/semiconductors becomes clear. Outlook ahead of the US midterm elections

Hello everyone! Today’s Tokyo stock market saw a back-and-forth trend as it carried over the weakness from US stocks at the end of last week, while waiting for big events early in the week. I will clearly summarize today’s market review and the key points regarding corporate earnings and the macro environment currently in focus.

1. Review of the Tokyo Market on Monday, November 2

In the Tokyo stock market on the 2nd, the Nikkei Stock Average fell for the second consecutive day, and the closing price ended at 63,081.86 yen, down 208.25 yen (0.33%) from the end of last week.

【Today’s Stock Market Data】
・Nikkei Average: 63,081.86 ▲208.25 (▲0.33%)
・TOPIX: 3,930.28 ▲34.79 (▲0.88%)
・NT Ratio: 16.05 +0.09 (+0.6%)
・TSE Prime Price Movement: Advancers 505 / Decliners 1,011 / Unchanged 36

In the morning, selling took precedence due to the weakness in US high-tech stocks (disappointing earnings from Intel and Amazon, and a significant drop in the SOX index), but after the initial selling subsided, the movement to sell in a hurry was limited, and there were moments when it rose into positive territory. However, with a strong wait-and-see mood ahead of the US midterm elections scheduled for the following day, the market remained heavy, sinking back into negative territory in the latter half.

2. ‘Selection’ in AI and semiconductor stocks becomes pronounced

The biggest highlight of today’s market is the ‘light and shadow (selection) by stock’ in AI and semiconductor-related stocks.

🔴 Kioxia HD (285A) plunges

The consolidated operating profit forecast for the October-December 2026 period (5.2597 trillion yen, 19 times higher than the same period last year) announced at the end of last week fell short of market consensus, causing disappointment and leading to a temporary 17% drop (11,135 yen), marking its lowest level since late April. While failing to meet the market’s high expectations (hurdle) was a burden, some experts suggest that ‘the October-December period has a higher ratio for smartphones and PCs, but momentum will recover in the January-March period due to increased shipments for data centers, etc.’

🟢 Tokyo Electron, Advantest, etc. are firm

On the other hand, Tokyo Electron (8035), which announced strong earnings and an upward revision to its order forecast, was bought firmly, rising 5%, while Advantest (6857) rose 3% and Lasertec (6920) rose 8%. Healthy selective buying continues, where good performance stocks that can be evaluated are being bought steadily.

3. April-September earnings and the direction of the ‘upward revision rush’

Currently, the announcement of the April-September 2026 earnings for companies with a March fiscal year is in full swing.

• Strong Revision Index: According to QUICK, the ‘Revision Index,’ which subtracts the percentage of downward revisions from upward revisions of earnings forecasts by analysts for TOPIX constituent stocks, remained positive for 14 consecutive months until September, and in September it recorded +37.7, the highest level for this fiscal year.

• Manufacturing and AI-related driving force: Against the backdrop of generative AI demand, manufacturing industries such as electrical equipment are strongly driving overall performance.

However, because prior market expectations were extremely high, it is also a market environment where ‘a sense of material exhaustion’ or temporary adjustment selling is likely to occur due to even a slight gap with market forecasts. As the tailwinds from the external environment have passed, we have entered a phase where the ‘true ability’ of each company is being strictly assessed.

4. Future market outlook and points of interest

As pointed out in commentaries by Daiwa Securities and others, the points of interest for this week are summarized in the following elements.

1. The outcome of the US midterm elections (voting on November 3rd) If a ‘blue wave’ occurs where the Democratic Party controls both houses, concerns over fiscal policy easing and tighter AI and financial regulations could lead to temporary stock selling, lower US interest rates, and a stronger yen against the dollar (with caution toward the 155 yen level). The market will be watching how the sense of ‘relief’ after the election passes affects trading in the latter half of the week.

2. Crude oil prices remain high (WTI in the $104 range) Due to concerns over geopolitical risks, crude oil prices are stuck at a high level, and it is necessary to continue monitoring the risks of reignited inflation and the impact on corporate costs.

3. Ongoing rush of domestic and international earnings announcements With earnings announcements from Apple in the US, and major domestic trading companies, Toyota Motor, and Nintendo approaching, the key will be whether strong performance and additional shareholder returns (such as share buybacks) can support the market.

💡 Summary While the market is expected to be heavy in the first half of the week due to caution ahead of the US midterm elections and some earnings shocks, the overall bullish tone of the market and capital outflows have not occurred. Let’s face the market cautiously while thoroughly managing risks, while looking forward to the relief after the events pass and the search for individual stocks with good earnings!

Let’s continue to keep an eye on market changes this week. Please be sure to like and follow!