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Nasdaq closes lower as chip maker Micron’s warning renews tech breakout

Nasdaq closes lower as chip maker Micron's warning renews tech breakout
Written by boustamohamed31

  • Micron falls on lowered earnings estimates
  • Semiconductor stocks fall for a third session
  • Novavax collapses after revenue outlook cut in half

NEW YORK, Aug 9 (Reuters) – Nasdaq closed lower on Tuesday after a gloomy forecast from Micron Technology sent shares of chipmakers and technology companies lower as investors awaited U.S. inflation data that could prompt the Federal Reserve to tighten further is for limiting inflation.

Wednesday’s strong inflation reading, following last week’s jobs report, would likely stop the Federal Reserve from easing rate hikes anytime soon and halt the market’s rally from mid-June lows.

Traders see a 68.5% chance the Fed will raise rates by 75 basis points in September, which would be the third big hike in a row.

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Adding to concerns about a tight labor market and brisk inflation, data on Tuesday showed an acceleration in unit labor costs in the second quarter, suggesting strong wage pressures will help keep inflation under control. Read more

Unit labor costs – the cost of labor per unit of output – rose at a 10.8 percent pace, following a 12.7 percent growth rate in the first quarter, the Labor Department said.

“We still see upward pressure on wages, using last Friday’s jobs data as a benchmark,” said Jimmy Chang, chief investment officer at Rockefeller Global Family Office.

Chang remains cautious about the market’s outlook. “I don’t think a set of numbers is going to change the Fed’s policy course,” he said.

Inflation is now largely driven by supply, so the central bank’s traditional scheme of tightening interest rates to curb demand will not be as effective as in previous cycles, said Jean Boivin, head of the BlackRock Investment Institute.

“We will see that central banks are surprised by inflation. They have to sound mean against that,” Boivin told the Reuters Global Markets Forum.

The Dow Jones Industrial Average (.DJI) fell 58.13 points, or 0.18%, to 32,774.41, while the S&P 500 (.SPX) lost 17.59 points, or 0.42%, to 4,122.47 and the Nasdaq Composite (.IXIC) fell 150.53 points, or 1.19%, to 12,493.93.

Volume on US exchanges was 10.64 billion shares, compared to the 10.94 billion average for the entire session over the past 20 trading days.

Seven of the 11 major S&P 500 sectors declined, led by a 1.5% decline in consumer discretionary (.SPLRCD). Stocks of value (.IVX) closed flat while the growth index (.IGX) fell by 0.8%.

Last Friday’s jobs data undermined some of the bullish arguments that the Fed would “move” toward 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, now it’s a new bull market,” he said. “Typically in a bear market, a summer rally is not unusual.”

Micron Technology Inc (MU.O) fell 3.7% after the memory chip maker cut its revenue forecast for the current quarter and warned of negative free cash flow next quarter as demand for chips in PCs and smartphones declines. Read more

Performance since the beginning of the year

Micron’s gloomy forecast comes a day after Nvidia Corp (NVDA.O) warned of weakness in its gaming business, knocked down the Philadelphia Semiconductor index (.SOX) down 4.57%, its biggest one-day decline since June 16, as all 30 components fell. The index has lost 7% over the past three days.

President Joe Biden signed a sweeping bill to provide $52.7 billion in subsidies for U.S. semiconductor manufacturing and research, a measure that won bipartisan support to combat Chinese investment in the technology. Read more

“It’s completely discounted,” said Michael Shaul, chief executive of Marketfield, on why chip stocks are unfazed by the bill.

Interest-sensitive growth and tech stocks edged lower, while U.S. Treasury yields rose.

Despite the volatile recovery, the benchmark S&P 500 (.SPX) is down 13.5% this year after hitting a record high in early January as rising consumer prices, hawkish central banks and geopolitical tensions weighed.

Stronger-than-expected earnings from corporate America were positive, with 77.5% of S&P 500 companies beating earnings estimates, according to data from Refinitiv on Friday.

Occidental Petroleum (OXY.N) rose 4.0% behind Warren Buffett’s Berkshire Hathaway (BRKa.N) increased its stake to 20.2% of outstanding shares. Occidental’s shares have more than doubled this year. Read more

American vaccine manufacturer Novavax (NVAX.O) fell 29.6% after it halved its annual revenue forecast as it expects no additional sales of its COVID-19 vaccine this year in the United States amid a global supply glut and weak demand. Read more

Declining issues outnumber rising ones on the NYSE by a ratio of 1.91 to 1; on the Nasdaq, a ratio of 2.41 to 1 favored the decliners.

S&P 500 posts four new 52-week highs and 30 new lows; The Nasdaq Composite recorded 42 new highs and 66 new lows.

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Reporting by Herbert Lash in New York and Bansari Mayur Kamdar in Bengaluru; Additional reporting by Aniruddha Ghosh in Bengaluru; Editing by Arun Koyyur, Shounak Dasgupta and Lisa Shumaker

Our standards: Thomson Reuters Trust Principles.

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