The tech stocks, which led the stock market rebound seen since in early 2023, have come under pressure since early July, with the weakness more concentrated in the semiconductor space. Early indications suggest these stocks could be in for more losses on Friday.
Economic Evidence Not-so Positive: The iShares Semiconductor ETF SOXX traded down about 3% in premarket trading, adding to the 7%+ drop seen on Thursday. The sell-off seen on Thursday came on the back of some sore data points, including weak manufacturing activity data and a spike in jobless claims. These data points added weight to the view that the economy is slowing down and could potentially face the risk of a hard landing.
The Federal Reserve Chairman Jerome Powell and his team have hinted at beginning rate cuts as early as the September meeting. Rate cuts could bring the spotlight to the SMID-cap stocks, which have underperformed the broader market in the bull run seen since 2023, accelerating the rotation out of mega-cap techs.
Incidentally, small-caps also retreated on Thursday, suffering more losses relative to the tech stocks.
See Also: Best Semiconductor Stocks
Sector-Specific Risks: Semiconductor stocks are facing some sector-specific risks such as the U.S.-China standoff, which will remove from the equation a key market for these companies. Nvidia Corp. NVDA and Advanced Micro Devices, Inc. AMD are already facing the music as they scramble to offset the impact by rolling out chips that can help them sidestep the China chip ban imposed by the U.S.
Regulatory overhang is an added impediment for these companies. Nvidia for one is stymied by the possibility of the U.S. Department of Justice initiating a probe over the Jensen Huang-led company monopolizing the market for AI accelerators.
Also weighing down on sentiment is a disappointing earnings report for Intel Corp. INTC and the company also announced workforce reduction and suspension of dividends in the wake of the predicament.
The ultimate fate of chip stocks in Friday’s session will hinge on how the July non-farm payrolls report pans out. A modest slowdown in job growth and contained average hourly earnings could prompt traders to buy back beaten-down stocks. On the contrary, very weak job growth and/or a rise in the average hourly earnings – a proxy for inflation, could steepen the sell-off.
The Stock Moves: Intel is leading the sell-off with a 21.79% plunge to $22.72, according to Benzinga Pro data. Among the other major decliners in the premarket are:
- ASML Holding N.V. ASML fell 6.52% to $826.13.
- Arm Holdings plc ARM was down about 5.37% to $114.38.
- AMD was down a more modest 0.70% to $131.61.
- Broadcom Inc. AVGO fell 2.30% to $140.64.
- Micron Technology, Inc. MU slipped 3.46% to $96.
The SOXX has pulled back to a nearly 2-month low with its plunge on Thursday. The exchange-traded fund closed at its lowest level since May 9, settling down 7.21% to $218.42. In the premarket on Friday, it was down 2.94% at $211.99. Among the other sector-specific ETFs:
- VanEck Semiconductor ETF SMH fell 3.68% to $222.50.
- Direxion Daily Semiconductor Bull 3X Shares SOXL plunged 7.91% to $32.23.
- GraniteShares 2x Long NVDA Daily ETF NVDL, an ETF that tracks Nvidia’s performance, fell 7.48% to $47.60.
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Photo by Igor Omilaev on Unsplash
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