A rout in chipmakers led to a broader market decline, with a gauge of powerhouses like Nvidia Corp. and Broadcom Inc. falling by 5%. This occurred despite a solid outlook from Taiwan Semiconductor Manufacturing Co. (TSMC), which raised its spending forecast, reflecting investor concerns that the AI trade is being priced for perfection rather than mere growth. The Nasdaq 100 dropped 1.6%, and the S&P 500 fell 0.5%, even though most S&P 500 shares rose overall.
Analysts like Matt Maley at Miller Tabak noted that the negative response to strong numbers from TSMC is raising concerns about the leadership group of chip stocks. They emphasized that the performance of chip stocks remains the most important issue for the stock market, warning that sustained weakness could signal real warning flags. Traders are evaluating whether tech stocks have become overvalued amidst uncertainties about the returns on trillions of dollars in AI spending, with the four largest US AI operators, including Meta Platforms Inc. and Alphabet Inc., expected to spend over $725 billion this year alone.
Geopolitical tensions, specifically intensified US strikes against Iran, also dampened risk appetite. Brent oil hovered near $85 a barrel, and West Texas Intermediate crude fell 1% to $78.79, fueling concerns about potential inflationary pressures that could prompt the Federal Reserve to raise interest rates again this year. Bond yields rose, with the yield on 10-year Treasuries advancing two basis points to 4.57%. Federal Reserve officials, including Kansas City President Jeff Schmid and Dallas counterpart Lorie Logan, voiced worries about inflation and called for higher rates, respectively.
Economic data presented a mixed picture, with jobless claims falling last week and retail sales increasing modestly in June by 0.2%, in line with economist expectations. The rise in retail sales was primarily outside gas stations, showing continued consumer resilience. However, this data did not significantly alter investor expectations regarding the Federal Reserve's interest rate path. The Bloomberg Dollar Spot Index rose 0.2%, while Bitcoin fell 1.4% to $64,009.09 and Ether dropped 2.9% to $1,867.42.
