US stocks closed lower on July 1st, the first trading day of the second half of the year, with the Nasdaq and S&P 500 experiencing a pullback primarily due to a broad sell-off in semiconductor stocks. The Philadelphia Semiconductor Index dropped approximately 6.3%, with notable declines including Micron Technology ($10.57%), Intel ($9.03%), AMD ($6.89%), and Nvidia ($1.25%). This correction in AI chip stocks is attributed to growing market concerns over high valuations, capital expenditure return cycles, and some profit-taking after an earlier rally.
In stark contrast to the semiconductor sector, Meta Platforms (META) saw a significant surge of about $8.83% (or $7-10% in other reports). This rise followed reports that Meta is developing a cloud business to sell its surplus AI computing capacity to external parties, potentially entering the enterprise AI computing services market. This move is seen by the market as a way to alleviate investor concerns about Meta's substantial AI capital expenditures and to open up new revenue streams beyond its core advertising business, placing it in competition with established cloud providers like Amazon, Microsoft, and Google.
Investors also reacted to a slightly cooling US manufacturing sector and slowing private employment growth. The ISM Manufacturing PMI for June fell to 53.3 from 54.0 in May, though it remained in expansionary territory. ADP data indicated that private sector employment increased by 98,000 in June, below expectations of 113,000 or 120,000, signaling a stable but decelerating labor market. All eyes are now on the imminent June non-farm payrolls report for further clues on the US labor market's health.
Federal Reserve Chairman Warsh, speaking at the European Central Bank's Sintra Forum, indicated a shift in the Fed's policy communication. He stated that the Fed would avoid using forward guidance to steer market expectations on interest rates and would instead focus more on real-time economic data, reinforcing the 2% inflation target without hinting at future policy directions. This new data-dependent approach is expected to be strengthened over the next 9 to 12 months. Geopolitical developments also played a role, with some reports noting easing US-Iran tensions driving crude prices to four-month lows, while spot gold rebounded.
