New York: The Nasdaq closed down on Tuesday 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 on Wednesday, 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 labor market and runaway inflation, data on Tuesday showed an acceleration of unit labor costs in the second quarter, which suggested strong wage pressures will help keep inflation elevated.
Unit labor costs — the price of labor 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 Labor 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 Feds 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.
According to preliminary data, the S&P 500 lost 17.36 points, or 0.42 per cent, to end at 4,122.70 points, while the Nasdaq Composite lost 149.92 points, or 1.19 per cent, to 12,494.45.
The Dow Jones Industrial Average fell 53.72 points, or 0.16 per cent, to 32,778.82.
Seven of the 11 major S&P 500 sectors fell, led by consumer discretionary. Big gains in energy pushed value stocks to perform better than growth.
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, said Jimmy Chang, chief investment officer at Rockefeller Global Family Office.
“You have some strategists and technicians capitulating, saying the bottom is behind us, this is a new bull market now,” Chang said. “Typically in a bear market, a summer rally is not unusual.” Micron Technology slid after the memory-chipmaker cut its fourth-quarter revenue forecast and warned of negative free cash flow the following quarter as demand ebbs for chips used in personal computers and smartphones.
Micron’s warning, a day after Nvidia Corp forecast weakness in its gaming business, knocked the Philadelphia Semiconductor index lower, with all 30 components down.
The index has fallen almost 8 per cent 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 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 after Warren Buffett’s Berkshire Hathaway 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 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.