PrintUS STOCKS-S&P, Nasdaq drop on tech selloff as concerns about hawkish Fed, AI spending mount
BY Reuters | ECONOMIC | 11:53 AM EDT* Indexes: Dow flat, S&P down 1.12%, Nasdaq down 1.70%
* Russell 2000 down 0.83%
* Chip shares lead selloff
* CBOE Volatility index at an over one-week high (Updates with mid-afternoon prices, analyst comment)
By Twesha Dikshit and Joel Jose
June 23 (Reuters) - The Nasdaq and the S&P 500 fell to over one-week lows on Tuesday, dragged down by sharp losses in semiconductor stocks as investors braced for a more hawkish Federal Reserve and scrutinized growing debt-funded AI spending.
If losses hold, the Nasdaq 100 would lose over $1 trillion
in market value. Nvidia
Memory chipmakers Micron Technology
A sharp selloff in the previous session rocked U.S. tech heavyweights, driven by doubts over hyperscalers' debt-backed AI spending despite stretched valuations.
"The trade has been highly concentrated and flow-driven, which makes it vulnerable to relatively small shifts in sentiment," said Ross Mayfield, investment strategy analyst at Baird.
"It does not appear to be closely tied to the fundamentals of the AI story, but rather to the heavy concentration and strong inflows into tech and global tech over the past few months (that are) now starting to unwind."
Micron's results, expected on Wednesday, could offer clues on the outlook for the memory and AI chip sector after a searing rally this year.
The Philadelphia SE Semiconductor index tumbled 7.6%, while the S&P 500 tech sector index shed 3.2%.
At 11:15 a.m. ET, the Dow Jones Industrial Average rose 14.39 points, or 0.03%, to 51,727.10, the S&P 500 lost 83.46 points, or 1.12%, to 7,389.33 and the Nasdaq Composite lost 444.00 points, or 1.70%, to 25,722.61.
The rate-sensitive Russell 2000 index was down 0.8%. The CBOE Volatility Index, Wall Street's fear gauge, hit an over one-week high, climbing 2.3 points to 19.58.
"When you have this potentially higher rate environment and this competition for money (due to big IPOs) and kind of other uncertainties about oil prices ...the whole market is likely to get more volatile," said Melissa Brown, managing director of investment decision research at SimCorp.
The S&P 500 is, however, heading for its strongest quarterly gain in six years, buoyed by a Middle East ceasefire and stronger-than-expected earnings, even as concerns over stretched AI stock valuations resurface.
Six of 11 major S&P 500 sectors moved higher, with consumer staples rising the most at 1.9%. With highly priced tech shares coming under pressure recently, investors have shifted focus to other areas of the market.
Shares of Elon Musk's SpaceX were last up 2.1%, reversing early losses. More than $600 billion was wiped off the company's market value over the past three sessions. SpaceX, which debuted earlier this month, joined a list of megacaps to tap the bond market to raise capital.
Heavily battered software shares also gained with
ServiceNow
Traders are increasingly betting on a second interest rate hike by the U.S. Fed by December, according to LSEG data, compared to expectations of just one 25-basis-point hike two weeks ago, as investors price in hawkish monetary policy under new Chair Kevin Warsh.
Investors are keeping a close eye on developments in the Middle East after the U.S. waived sanctions on Iran for 60 days after the first round of talks under a nascent peace deal.
Economic data showed U.S. manufacturing activity rose again in June for a fourth straight month as companies placed new orders in anticipation of shortages, but factory employment hit a six-year low.
The focus this week will be on the closely watched Personal Consumption Expenditures Price Index data, the Fed's preferred inflation gauge. The data is expected on Thursday.
Declining issues outnumbered advancers by a 1.24-to-1 ratio on the NYSE and by a 1.01-to-1 ratio on the Nasdaq.
The S&P 500 posted seven new 52-week highs and three new lows, while the Nasdaq Composite recorded 67 new highs and 128 new lows.
(Reporting by Johann M Cherian, Twesha Dikshit, Joel Jose and Medha Singh in Bengaluru; Editing by Mrigank Dhaniwala, Sherry Jacob-Phillips and Shinjini Ganguli)
