Nasdaq, S&P 500 Futures Plunge After Trump's Comments And ASML's Weak Forecast Deepens Tech Sell-Off: AI Narrative May Be Priced In, Says Analyst

Sentiment will likely reverse course, with the index futures trading notably lower early Wednesday. The recent run-up ideally should render the mood cautious, and the caution may intensify as the first AI-levered chip company from across the Atlantic reported second-quarter results that were not viewed positively by the Street.

Republican presidential nominee Donald Trump added to the worries concerning the tech space after he said in a Bloomberg interview that Taiwan should foot its own defense bill as it strives to keep China at bay. Taiwan houses most chip suppliers to the tech industry. Bond yields edged up ahead of the housing starts and industrial production report.

Cues From Last Session:

U.S. stocks kept their rally streak alive as they advanced on Tuesday, with material, industrial and consumer discretionary stocks fueling the upside, offsetting the weakness seen among IT and communication services stocks. A healthy retail sales report did not dampen expectations for a rate cut, with bond yields finishing down 1.70%.

The major averages opened uniformly higher, and the Dow Jones Industrial Average and the S&P 500 Index advanced steadily and kept themselves to the positive terrain.

In the process, the Dow and the S&P 500 Index notched up fresh intraday and closing highs. Commenting on the Dow’s move, Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, said, “The Dow has spent most of the past two years lagging the S&P 500 index, but it has new wind in its sales this summer on the hopes that the market rally will broaden from a narrow set of technology companies into a broader array of companies throughout the economy.”

The Nasdaq Composite, however, squandered its early gain and traded mostly below the unchanged line before closing modestly higher.

Small-caps once again outperformed with the Russell 2,000 Index closing at a fresh 2-1/2 year high.

Money is flowing out of mega-cap tech stocks and the market breadth is rapidly improving as the odds for a Fed rate cut in September climbed to over a 90% probability, said fund manager Louis Navellier.

“This is a healthy development but will be tested as earnings and forecasts roll out during the current earnings period,” he said. “No one is calling the AI narrative a bubble (yet) but it may be largely priced in until more concrete examples of inroads are identified beyond chip sales and data center build-outs.”

The momentum remains clearly positive, and the earnings season is off to a good start, Navellier said.

LPL Financial Chief Technical Strategist Adam Turnquist said competing factors underpin small-cap performance. Immediate data points such as consumer price inflation and Fed projections are igniting small-cap names higher for now, the strategist said. He expressed doubts about whether a longer-term economic slowdown will balance out the recent step higher.

Turnquist sees a portion of small-cap stocks, mainly regional banks on the value side, to continue to benefit from elevated lending rates if the higher-for-longer policy takes hold. On the contrary, if economic weakness persists, he recommended positioning in more profitable segments of the small caps and remaining cautious. “The late-cycle characteristics of this economy and the increase in expected volatility require a watchful and targeted approach at this point,” he added.

Upcoming Economic Data:

• The Commerce Department is due to release the housing starts report for June at 8:30 a.m. EDT. The consensus estimate calls for the month’s housing starts, and building permits, an indicator of future housing activity, to come in at 1.30 million units and 1.40 million units, respectively. In May, the readings came in at 1.28 million units and 1.39 million units.
• Richmond Fed President Tom Barkin is scheduled to speak at 9 a.m. EDT.
• The Fed will release its industrial production report for June at 9:15 a.m. EDT. Economists, on average, expect industrial output growth of 0.3% month-over-month, slower than the 0.9% increase in May.
• Fed Governor Christopher Waller will make a public appearance at 9:35 a.m. EDT.
• The Energy Information Administration is due to release its weekly petroleum status report at 10:30 a.m. EDT.
• The Treasury will auction 20-year bonds at 1:30 p.m. EDT.
• The Fed will release its Beige Book at 2 p.m. EDT. The report compiles anecdotal evidence of economic conditions in the 12 Fed districts.

See Also: Best Futures Trading Platforms

Stocks In Focus:

• J.B. Hunt Transport Services, Inc. JBHT fell over 2.50% in premarket trading following the release of its quarterly results.
• ASML Holdings N.V. ASML plunged over 7% after the chipmaker’s earnings, and this served to exert downward pressure on other chip stocks such as Nvidia Corp. NVDA and Advanced Micro Devices, Inc. AMD.
• Johnson & Johnson, Inc. JNJ and Ally Financial Inc. ALLY are among the notable companies reporting their quarterly results ahead of the market open.
• Those reporting after the close include Alcoa Corporation AA, Discover Financial Services DFS, Kinder Morgan, Inc. KMI, SL Green Realty Corp. SLG, Steel Dynamics, Inc. STLD and United Airlines Holdings, Inc. UAL.
• GitLab Inc. GTLB jumped nearly 16% after a Reuters report said the company is exploring a sale.
• Five Below, Inc. FIVE plummeted about 16% after the company announced that its CEO was stepping down.

Commodities, Bonds And Global Equity Markets:

Crude oil futures rose after three straight sessions of declines and gold futures were seen extending gains and have topped the $2,470 level. The 10-year Treasury yield climbed 2.2 points to 4.171%. Bitcoin BTC/USD gained ground and traded above the $65K level.

The Asian markets closed on a mixed note, with the Japanese, Chinese, South Korean and Taiwanese markets retreating sharply. The Australian, New Zealand and Malaysian markets gained ground, while the Indian market remained closed for a public holiday. Trump’s comments about the China-Taiwanese standoff weighed down on the markets in these two nations.

European stocks were fidgety at the start of trading, as traders digested domestic earnings reports, including the one from Dutch chip equipment maker ASML and inflation reports.

Read Next:

• Netflix, Goldman Sachs, J&J, ASML Lead Q2 Reports This Week As Analysts See Earnings Growth Accelerating To Fastest In Over 2 Years

Image Via Midjourney