The culprit in the market’s drop on early Wednesday? Semiconductor stocks.
The
is down 0.5% Wednesday after having plunged 1.6% on Tuesday. The index, at just above 5000, is now down about 5% from its record intraday high, hit in late March.Â
A few factors have been to blame for the broader drop. The S&P 500, at its high, was trading expensively at more than 20 times expected earnings for the coming 12 months, near the high end of its range since early 2022 when the Federal Reserve started lifting interest rates to cool the economy. Earlier this year, investors had been pricing in rate cuts soon, too. But the Fed, facing several stickier inflation readings, is now more likely to keep rates higher for some time instead of cutting them. Â
Today, the broader market is dealing with a drop in chip stocks after
offered a sales forecast that was slightly disappointing.
AMD stock is down 7% in Wednesday’s premarket session. The company beat earnings expectations but its second-quarter sales guidance of $5.7 billion at the midpoint of the range puts it on pace to post full-year revenue that would be lower than analysts’ forecasts. The guidance points to a continued decline in gaming sales amid weak consumer demand. Data center revenue, though, grew rapidly and management expects that to continue as it ramps up sales of artificial intelligence chips.Â
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That forecast is weighing on all chip names, with the
off 1.9%.
Nvidia
,
Micron,
ON Semi
,
and
are all in the red, among others.Â
These names account for trillions of dollars worth of market value, and their declines are dragging the S&P 500 lower. The
which has less of a technology weighting, is down only 0.2%. It’s the semiconductor group that’s causing a lot of the damage to the S&P 500. The
which is more exposed to tech, is down 0.4%.
The S&P 500’s drop is worth monitoring closely. The key level to watch for the index is 4967, where it fell to in late April before bouncing back. If buyers don’t come back in at that level, it would suggest that the outlook for stocks has changed for the worse. News from the Fed or perhaps another key earnings report could be the trigger at that point.
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A drop below that support level could bring the S&P 500 down to its 200-day moving average of about 4700, or down 7% from current levels. Over the past several decades, the S&P 500 tends to see buying support at its 200-day moving average.
Watch how the market trades at around 4967.Â
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
