Markets Slip Amid Chip Sector Concerns and Geopolitical Tensions

The S&P 500 Index ($SPX) (SPY) ended Tuesday down -0.76%. Meanwhile, the Dow Jones Industrials Index ($DOWI) (DIA) fell -0.75%, and the Nasdaq 100 Index ($IUXX) (QQQ) decreased by -1.37%.

Chip Stocks Struggle Amid Policy Talks

On Tuesday, stocks dropped moderately, influenced by a sell-off in chip stocks. Bloomberg reported the Biden administration is considering restrictions on AI chip sales tailored by country. This news contributed to ASML Holding NV’s notable decline after the company revealed weaker-than-expected Q3 bookings. The energy sector also faced challenges. A more than -4% drop in WTI crude oil followed reports that Israeli Prime Minister Netanyahu discussed military action against Iran, marking a significant shift in diplomatic focus. Additionally, managed healthcare stocks faltered, especially after UnitedHealth Group revised its annual earnings forecast downwards.

Corporate Earnings Provide Some Support

Positive earnings from Goldman Sachs and Bank of America offered some support to the market. Walgreens Boots Alliance and Charles Schwab also saw gains after posting strong quarterly results. However, expectations remained cautious, as the US Empire Manufacturing survey indicated a decline, falling -23.6 points to a 5-month low.

Federal Reserve Outlook Fuels Market Sentiment

Comments from San Francisco Fed President Mary Daly suggested that last month’s Fed rate cut was more about adapting to cooling inflation rather than a shift in policy approach. Daly hinted at the potential for one or two additional 25 basis point rate cuts by the end of the year, which reassured some investors.

Middle East Tensions Continue to Influence Markets

Continuing conflicts in the Middle East cast shadows over stock performance. Israel’s military activity in Gaza and Lebanon, along with the response to Iran’s missile attack on October 1, are critical issues to watch.

Upcoming Earnings to Guide Stocks

As companies prepare to report their Q3 earnings, analysts expect S&P 500 firms to show a +4.3% increase in earnings from the previous year, a slight decline from earlier projections of +7.9%.

Market Rate Cut Predictions

Investors anticipate a 97% probability of a -25 basis point rate cut at the November 6-7 FOMC meeting, with no expectation for a -50 basis point cut during this session.

Global Market Overview

International stock markets showed mixed results on Tuesday. The Euro Stoxx 50 declined -1.87% after reaching a 2-week high, while China’s Shanghai Composite fell -2.53%. Japan’s Nikkei Stock 225, however, rose to a 2-3/4 month high, climbing +0.77%.

Interest Rates Update

December 10-year T-notes (ZNZ24) closed up +18.5 ticks, with the 10-year T-note yield dropping -6.8 basis points to 4.032%. T-notes gained traction as crude oil prices fell sharply, leading to lowered inflation expectations, and they were further buoyed by faltering stocks.

European bond yields also decreased, as the 10-year German bund yield fell to a 1-week low of 2.222%, while the UK gilt yield declined to 4.162%.

Strong Manufacturing Data from Eurozone

The Eurozone reported a +1.8% month-over-month rise in industrial production for August, marking the largest increase in over a year. Meanwhile, October’s ZEW survey for Germany showed a positive shift, with expectations of economic growth rising by +9.5 to 13.1, surpassing the forecast of 10.0.

US Stock Movers

Leading the Nasdaq 100’s declines, ASML Holding NV (ASML) plunged over -16% after reporting Q3 bookings of 2.63 billion euros, falling short of the expected 5.39 billion euros. Concerns about the tech sector spread, with KLA Corp (KLAC) and Applied Materials (AMAT) both dropping more than -10% as advanced chip sales faced scrutiny. Other notable declines in chip stocks included Advanced Micro Devices (AMD), down over -5%, and Nvidia (NVDA), falling more than -4%.

Within the energy sector, stocks plummeted following WTI crude oil’s decline. APA Corp (APA) closed down more than -6%, while Diamondback Energy (FANG) saw a drop of over -5%.

Managed healthcare suffered a setback, primarily due to a -7% fall in UnitedHealth Group (UNH), which adjusted its adjusted EPS forecast. Citigroup (C) also faced a challenge, closing down more than -5% after reporting lower-than-expected net interest income.

On a more positive note, Walgreens Boots Alliance (WBA) surged over +15% following a strong Q4 sales report. Charles Schwab (SCHW) gained by more than +6% thanks to a better-than-expected Q3 net interest revenue.

In tech gains, Marvell Technology (MRVL) rose more than +2%, while Wolfspeed (WOLF) jumped over +21% on news of potential government grants totaling $750 million. Boeing (BA) increased by more than +2% after securing a $10 billion line of credit.

Additionally, Apple (AAPL) saw a modest increase of more than +1% as it introduced a new iPad mini, capably integrating its latest AI features.

Upcoming Earnings Reports

Investors will be closely watching earnings reports from Abbott Laboratories (ABT), Citizens Financial Group Inc (CFG), Crown Castle Inc (CCI), CSX Corp (CSX), Discover Financial Services (DFS), Equifax Inc (EFX), Kinder Morgan Inc (KMI), Morgan Stanley (MS), PPG Industries Inc (PPG), Prologis Inc (PLD), Steel Dynamics Inc (STLD), Synchrony Financial (SYF), and US Bancorp (USB) on October 16, 2024.

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On the date of publication, Rich Asplund did not hold any positions in any of the securities mentioned in this article. All information and data are for informational purposes only. For additional details, please see the Barchart Disclosure Policy.

The views expressed in this article belong to the author and may not reflect those of Nasdaq, Inc.