Nvidia and AMD hammered
The world’s largest technology companies got hammered as concern about tighter US restrictions on chip sales to China spurred a selloff in the industry that has led the bull market in stocks.
From the US to Europe and Asia, chipmakers came under heavy pressure. American powerhouses Nvidia, Advanced Micro Devices and Broadcom drove a closely watched semiconductor gauge down almost 7% — the biggest slide since 2020.
Across the Atlantic, ASML Holding NV tumbled over 10% even after the Dutch giant reported strong orders. A plunge in Tokyo Electron led losses in the Nikkei 225 Stock Average.
Wednesday’s action reprised a recent trend in which capitalization-weighted indexes underperformed the average stock, a consequence of weakness in the megacaps that dominate them.
With firms such as Apple and Microsoft each making up 7% of the S&P 500, losses are hard to offset even when most of the index’s members are up — as it happened today.
The Biden administration told allies it’s considering severe curbs if companies like Tokyo Electron and ASML keep giving China access to advanced semiconductor technology.
“This news on the chip front is the kind of UFO (UnForeseen Occurrence) that could indeed create the kind of selling that could be the catalyst for a tradable correction in the stock market,” said Matt Maley at Miller Tabak + Co. “Broad indices have become very overbought.”
The S&P 500 fell 1.4%, while the tech-heavy Nasdaq 100 had its worst day since 2022.
A Bloomberg gauge of the “Magnificent Seven” megacaps slipped about 3.5%. The Russell 2000 of smaller firms dropped 1.1%.
Wall Street’s “fear gauge” — the VIX — hit the highest since early May. In late hours, United Airlines Holdings gave a bearish outlook.
A pair of chipmakers defied the selloff: Intel Corp. and Globalfoundries Inc.
The Dow Jones Industrial Average climbed for a sixth straight day — notching another record. Financial shares outperformed, with U.S. Bancorp surging on solid results.
The bond market saw small moves. The Federal Reserve’s Beige Book showed slight economic growth and cooling inflation.
The most-notable speaker on Wednesday was Governor Christopher Waller, who said the Fed is getting “closer” to cutting rates, but is not there yet. The yen led gains in major currencies, up almost 1.5%.
The Biden administration is in a tenuous position. US companies feel that restrictions on exports to China have unfairly punished them and are pushing for changes.
Allies, meanwhile, see little reason to alter their policies when the presidential election is just a few months away.
Meanwhile, Donald Trump, speaking in an interview with Bloomberg Businessweek, questioned whether the US has a duty to defend Taiwan — a major hub of semiconductor manufacturing.
“Normally, the impact of these types of headlines isn’t long-lasting, but in this case, we would note that semis have been underperforming the broader market for the last couple of weeks now,” said Bespoke Investment Group strategists. “So that’s something to watch.”
The tech underperformance is coming after a first half which saw megacaps propel the market higher, stretching valuations for these names and leaving them with a tougher setup for the rest of 2024.
Can the market keep powering ahead without tech?
“Much of this year’s equity gains have come from a handful of names currently under direct threat from the political arena,” said Jose Torres at Interactive Brokers.
“An important question is if the rest of the market, which generally lacks thrilling tales on a relative basis, can offset the waning momentum in ‘Magnificent Seven’ stocks.”
At Goldman Sachs Group Inc., Scott Rubner says “I am not buying the dip.”
The tactical strategist bets the S&P 500 has nowhere to go from here but down. That’s because this Wednesday, July 17, has historically marked a turning point for returns on the equity benchmark, he said, citing data going back to 1928.
And what follows, he says, is August — typically the worst month for outflows from passive equity and mutual funds.
Jonathan Krinsky at BTIG says the market is “nearing the end of the typical bullish window.”
Sentiment remains extremely complacent on the surveys and transactional indicators, he noted.
“While the rotation out of megacap tech into cyclicals and small-caps is encouraging, it felt a bit forced happening in such a short period of time,” Krinsky said.
“Even if this is going to be a more long-lasting rotation, we likely won’t be able to see that new leadership until after we see a higher correlation correction and then see what leads coming out of that.”
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