S&P 500 and Nasdaq head for steep weekly losses as chip stocks retreat

The S&P 500 and Nasdaq Composite were on track for significant weekly losses as semiconductor stocks came under renewed selling pressure on Friday following an exceptionally strong quarter, with investors questioning lofty valuations and the long-term implications of massive corporate spending on artificial intelligence.

Micron Technology shares fell 6.2% after surging more than 15% in the previous session. Other chipmakers, including Advanced Micro Devices and Nvidia, also came under heavy pressure, while the Philadelphia Semiconductor Index dropped 4.7%.

High-performing semiconductor stocks have struggled this week despite Micron’s strong earnings results, as concerns about inflation resurfaced after Apple announced price increases for its iPad and MacBook product lines due to sharply rising memory and storage chip costs.

Apple shares slipped 0.1% in early trading following Thursday’s 6.1% decline, their biggest one-day drop in more than a year after the company announced the price increases.

“The selloff in technology stocks reflects expectations of higher interest rates in the future,” said Peter Cardillo, Chief Market Economist at Spartan Capital Securities in New York.

“The market did not like Apple’s price increases because they could ultimately translate into higher consumer prices,” he added.

Data released on Thursday showed US inflation rose above 4% in May for the first time in three years, driven by higher energy prices linked to the Middle East conflict, keeping the possibility of additional Federal Reserve rate hikes on the table.

Although oil prices have fallen sharply as tensions in the Middle East eased, Apple’s unexpected pricing move has reignited concerns about inflation.

“We saw a similar dynamic during the pandemic when supply-chain disruptions restricted access to semiconductors,” said Art Hogan, Chief Market Strategist at B. Riley Wealth.

“Now we’re seeing a comparable supply shock, this time driven by the memory sector, creating a new source of inflationary pressure.”

Technology weakness weighs on major indexes

At 9:34 a.m. ET, the Dow Jones Industrial Average fell 229.49 points, or 0.44%, to 51,691.13.

The S&P 500 declined 60.87 points, or 0.83%, to 7,296.62, while the Nasdaq Composite dropped 336.63 points, or 1.33%, to 25,021.97.

Risk appetite within the technology sector was also hurt by a report suggesting that OpenAI is considering delaying its initial public offering until next year.

Shares of Elon Musk’s SpaceX, which began trading earlier this month, fell 1.6%.

Recent market volatility has encouraged investors to rotate into sectors that previously attracted less attention but could benefit from easing inflation concerns and improving economic growth expectations.

At the same time, declining tensions in the Middle East helped the blue-chip Dow Jones Industrial Average reach fresh record highs.

Investors were also preparing for elevated trading volumes on Friday due to Russell index rebalancing, including the reclassification of mega-cap companies such as Microsoft and the rapid addition of SpaceX to the Russell 1000 Index.

Markets await Fed signals and key economic data

Interest rate concerns continued to influence markets, with traders pricing in one 25-basis-point rate increase and roughly a 27% probability of an additional hike before year-end, according to data compiled by the London Stock Exchange.

The final June reading of consumer sentiment is due later today, while investors are also awaiting next week’s monthly employment report.

In corporate news, Synaptics shares rose 4.7% after ON Semiconductor agreed to acquire the company in an all-stock transaction valued at approximately $7 billion.

ON Semiconductor shares, however, fell 19%.

Declining stocks outnumbered advancing issues by a ratio of 1.37-to-1 on the New York Stock Exchange and 1.1-to-1 on the Nasdaq.

Within the S&P 500, 12 stocks reached new 52-week highs while four touched new lows. On the Nasdaq, 72 stocks hit new highs and 91 registered new lows.