NEW YORK (Reuters) – The Nasdaq closed lower on Tuesday after a dismal outlook from Micron Technology Inc sent chip makers and tech stocks lower as investors await US inflation data that could prompt the Federal Reserve to further tighten its efforts to curb inflation.
Wednesday’s high inflation numbers, after last week’s explosive jobs report, will likely prevent the Fed from easing interest rate hikes any time soon and halt the market’s rally from mid-June lows.
Traders see a 68.5% chance that the Fed will raise interest rates by 75 basis points in September, in what would be the third big increase in a row.
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Adding to concerns about a tight labor market and runaway inflation, Tuesday’s data showed an acceleration in unit labor costs in the second quarter, suggesting that strong wage pressures will help keep inflation high. Read more
The Labor Department said unit labor costs – the price of labor per unit of production – rose at a rate of 10.8%, after a growth rate of 12.7% in the first quarter.
“We continue to see wage pressure rise, using last Friday’s jobs data as a barometer,” said Jamie Chang, chief investment officer at the Rockefeller Global Family Office.
Zhang remains cautious about market expectations. “I don’t think it’s going to be a set of numbers that will change the course of Fed policy,” he said.
Currently inflation is primarily driven by supply, so the central bank’s traditional playbook of tightening rates to curb demand will not be as effective as previous cycles, said Jean Boivin, president of the BlackRock Investments Institute.
“We will see central banks caught up in inflation. They will have to appear hawkish on that,” Boivin told the Reuters Global Markets Forum.
Dow Jones Industrial Average (.DJI) It fell 58.13 points, or 0.18%, to 32,774.41 points, while the Standard & Poor’s 500 . declined (.SPX) It lost 17.59 points, or 0.42%, to 4,122.47 points, and the Nasdaq Composite (nineteenth) It fell 150.53 points, or 1.19%, to 12493.93 points.
Volume on US exchanges was 10.64 billion shares, compared to an average of 10.94 billion for the full session over the past 20 trading days.
Seven of the S&P 500’s 11 major sectors fell, led by a 1.5% drop in consumer appreciation (.SPLRCD). stock value (.IVX) Fixed closed, while the growth index (.IGX) 0.8% slipped.
Zhang said the jobs data from last Friday was eroded by some bullish arguments that the Fed will “focus” on policy-neutral, followed by rate cuts early next year.
The Nasdaq logo is displayed at the Nasdaq market position in New York, US, May 2, 2019. REUTERS/Brendan McDermid
“You have some strategists and technicians giving up, saying the bottom is behind us, and this is a new bull market now,” he said. “Usually in a bear market, a summer rally is not unusual.”
Micron Technology Co. (MU.O) It fell 3.7% after the memory chip maker cut its revenue forecast for the current quarter and warned of negative free cash flow in the following quarter as demand for chips in computers and smartphones slumped. Read more
Micron’s dismal forecast, a day after Nvidia (NVDA.O) Warned of weakness in gaming business, weakening the Philadelphia Semiconductor Index (.sox) It is down 4.57%, the biggest one-day drop since June 16 as all 30 components slipped. The index has lost 7% in the past three days.
President Joe Biden signed a sweeping bill to provide $52.7 billion in subsidies for US semiconductor production and research, a measure that has won bipartisan support to combat China’s investment in technology. Read more
Michael Shaul, CEO of Marketfield, said of why chip stocks weren’t affected by the bill, “They’re completely discounted.”
Interest rate-sensitive growth and technology stocks eased as US Treasury yields rose.
Despite a choppy recovery, the S&P 500 (.SPX) It is down 13.5% this year after hitting a record in early January with rising consumer prices, mounting central banks and geopolitical tensions.
Stronger-than-expected earnings from US companies were positive, with 77.5% of S&P 500 companies beating earnings estimates, according to Refinitiv data through Friday.
Occidental Petroleum (OXY.N) It rose 4.0% after Warren Buffett’s Berkshire Hathaway (BRKa.N) Its stake increased to 20.2% of traded shares. Occidental’s stock price has doubled this year. Read more
US vaccine manufacturer Novavax (NVAX.O) It fell 29.6% after it halved its annual revenue forecast as it expects no more COVID-19 sales this year in the United States amid a global supply glut and weak demand. Read more
Low issues outnumbered advanced issues on the New York Stock Exchange by 1.91 to 1; On the Nasdaq, the ratio was 2.41 to 1 in favor of declining stocks.
The S&P 500 posted four new highs in 52 weeks and 30 new lows; The Nasdaq made 42 new highs and 66 new lows.
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Additional reporting by Herbert Lash in New York and Bansari Mayor Kamdar in Bengaluru; Additional reporting by Anirudha Ghosh in Bengaluru. Editing by Arun Koyyur, Shounak Dasgupta and Lisa Shumaker
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