NEW YORK, Aug 10 — The Nasdaq closed down yesterday after a dismal forecast from Micron Technology pulled chip makers and tech stocks lower as investors await US inflation data that could lead the Federal Reserve to further tighten its efforts to curb inflation.
High inflation numbers today, following last week’s blowout jobs report, would likely stop the Fed from easing interest rates hikes anytime soon and halt the market’s rally off mid-June lows.
Traders see a 68.5 per cent chance of the Fed raising rates by 75 basis points in September, in what would be its third big hike in a row.
Adding to concerns of a tight labour market and runaway inflation, data yesterday showed an acceleration of unit labour costs in the second quarter, which suggested strong wage pressures will help keep inflation elevated.
Unit labour costs — the price of labour per single unit of output — rose at a 10.8 per cent rate, following a 12.7 per cent rate of growth in the first quarter, the Labour Department said.
“We’re still seeing wage pressure building, using last Friday’s job data as a gauge,” said Jimmy Chang, chief investment officer at Rockefeller Global Family Office.
Chang remains cautious about the market’s outlook. “I don’t think it’s going to be a set of numbers that will change the Fed’s policy course,” he said.
Inflation at the moment is primarily supply driven, so the traditional central bank playbook of tightening rates to crimp demand will not be as effective as previous cycles, said Jean Boivin, head of the BlackRock Investment Institute.
“We’re going to see central banks being surprised by inflation. They will have to sound hawkish on the back of this,” Boivin told the Reuters Global Markets Forum.
The Dow Jones Industrial Average fell 58.13 points, or 0.18 per cent, to 32,774.41, while the S&P 500 lost 17.59 points, or 0.42 per cent, to 4,122.47 and the Nasdaq Composite dropped 150.53 points, or 1.19 per cent, to 12,493.93.
Volume on US exchanges was 10.64 billion shares, compared with the 10.94 billion average for the full session over the past 20 trading days.
Seven of the 11 major S&P 500 sectors fell, led by a 1.5 per centdecline in consumer discretionary. Value stocks closed flat, while the growth index .IGX slid 0.8 per cent.
The jobs data from last Friday eroded some of the bullish arguments that the Fed would “pivot” to a neutral policy stance, followed by rate cuts early next year, Chang said.
“You have some strategists and technicians capitulating, saying the bottom is behind us, this is a new bull market now,” he said. “Typically in a bear market, a summer rally is not unusual.” Micron Technology Inc slid 3.7 per cent after the memory-chipmaker cut its current-quarter revenue forecast and warned of negative free cash flow in its next quarter as demand wanes for chips in PCs and smartphones.
Micron’s dismal forecast, a day after Nvidia Corp warned of weakness in its gaming business, knocked the Philadelphia Semiconductor index down 4.57 per cent, its biggest single-day decline since June 16 as all 30 components fell. The index has lost 7 per cent the past three days.
President Joe Biden signed a sweeping bill to provide US$52.7 billion in subsidies for US semiconductor production and research, a measure that gained bipartisan support to combat China’s investment in technology.
“It’s utterly discounted,” said Michael Shaoul, chief executive officer at Marketfield, on why chip stocks were unfazed by the bill.
Rate-sensitive growth and technology stocks slipped as US Treasury yields climbed.
Despite a choppy recovery, the benchmark S&P 500 is down 13.5 per cent this year after hitting a record high in early January as surging consumer prices, hawkish central banks and geopolitical tensions weigh.
Stronger-than-expected earnings from corporate America have been a positive, with 77.5 per cent of S&P 500 companies beating earnings estimates, according to Refinitiv data as of Friday.
Occidental Petroleum rose 4.0 per cent after Warren Buffett’s Berkshire Hathaway BRKa.N increased its stake to 20.2 per cent of outstanding shares. Occidental’s shares have more than doubled in price this year.
US vaccine maker Novavax slumped 29.6 per cent after it halved its annual revenue forecast as it does not expect further sales of its Covid-19 shot this year in the United States amid a global supply glut and soft demand.
Declining issues outnumbered advancing ones on the NYSE by a 1.91-to-1 ratio; on Nasdaq, a 2.41-to-1 ratio favoured decliners.
The S&P 500 posted four new 52-week highs and 30 new lows; the Nasdaq Composite recorded 42 new highs and 66 new lows. — Reuters