Chips and megacaps drive a significant decline in the Nasdaq and S&P 500, while the Dow continues to rise.
Due to the continuous shift away from megacap tech firms, the S&P 500 and the Nasdaq experienced a decline on Wednesday due to declining semiconductor shares and the possibility of escalating trade disputes between the United States and China.
Microchip stocks plunged 6.8%, the worst one-day decline in the Philadelphia SE Semiconductor Index since March 2020, on a report that the Biden administration is considering imposing tough trade measures against China.
The Nasdaq fell 2.8% as a result of a retreat in the “Magnificent 7” group of momentum companies, which was led by Apple and Nvidia. The S&P 500 fell 1.4%.
The Dow Jones Industrial Average managed to hold onto a little gain and post its third consecutive closing high. Until recently, the Dow Jones Industrial Average trailed the other two indices this year.
Despite the declining chip industry, Intel Corp., UnitedHealth Group, and Johnson & Johnson all contributed to the blue-chip average’s rise.
“We’re actually witnessing this extend into small caps for the first time, as the sell-off is being driven by pressure in the chip area,” stated Michael Green, chief strategist at Simplify Asset Management in Philadelphia.
“The U.S. is increasingly talking about cracking down on China, which has exacerbated the unwind that has already started,” Green stated. “Many of the areas (of the equities market) that have been neglected are experiencing discriminatory buying.”
Driven by fresh interest in relatively cheap companies and sectors within the equity market, the small-cap Russell 2000, which had jumped 11.5% over the previous five sessions, ended its best winning streak in excess of four years.
The CBOE Market Volatility Index momentarily reached its highest level in six weeks, indicating increased investor nervousness.
This is a look at how much megacap momentum stocks and chips have done better this year than the overall market:
In terms of the economy, a decline in single-family homebuilding is compensated by strength in multi-unit developments, as seen by housing starts and building permits that unexpectedly rose.
Separate data showed that June’s industrial output increased at a rate twice as fast as anticipated.
The statistics coincided with recent reports indicating that the resilience of the US economy will assist the Federal Reserve in bringing inflation down to its objective of 2% without causing the economy to decline, even in the face of weakening indications.
The Federal Reserve published its Beige Book on Wednesday, indicating that while the labor market continued to weaken, U.S. economic activity grew at a moderate rate from late May to early July.
As stated by Chuck Carlson, CEO of Horizon Investment Services in Hammond, Indiana, “the narrative has shifted a little bit.” “The economy looks like it is on a course for soft landing, and thus let’s buy the economically sensitive stocks.”
As per CME’s FedWatch tool, there is a 93.5% chance that the Fed will start reducing rates in September, which has been priced in by the financial markets.
While conceding that the central bank is moving close to lowering rates, some monetary policy makers would rather see additional evidence demonstrating that inflation is on a sustained downward trajectory.
With Johnson & Johnson reporting better-than-expected profit and revenue driven by robust prescription sales, the second-quarter earnings season is getting underway.
The S&P 500 sank 78.93 points, or 1.39%, to 5,588.27, the Nasdaq Composite fell 512.42 points, or 2.77%, to 17,996.93, and the Dow Jones Industrial Average increased 243.6 points, or 0.59%, to 41,198.08.
Consumer staples led the gainers among the S&P 500’s 11 major sectors, with technology and communication services experiencing the most percentage declines.
On the NYSE, declining issues outnumbered rising ones by a ratio of 1.39 to 1; on Nasdaq, the ratio was 1.66 to 1, favoring decliners.
While the Nasdaq Composite reached 251 new highs and 37 new lows, the S&P 500 recorded 82 new 52-week highs and no new lows.
The volume of shares traded on U.S. exchanges was 12.47 billion, which was lower than the average of 11.74 billion for the whole session for the previous 20 trading days.
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