Chip Selloff Hammers Growth Stocks. Is the AI Boom Over?


Chip stocks like Nvidia led the market to new highs last earnings season. The opposite could be happening this time.

The Philadelphia Semiconductor Index fell 9.2 percent between Friday, April 12, and Friday, April 19. It was the index’s biggest weekly drop in almost two years and dragged the broader S&P 500 down by 3 percent. The Nasdaq-100, dominated by large growth companies like NVDA, Apple (AAPL) and Tesla (TSLA), fell the most in 11 months.

Taiwan Semiconductor Manufacturing (TSM) lowered guidance and ASML’s (ASML) bookings missed forecasts. While neither company is actively traded in the U.S., both are major players in the global chip industry. A bigger hit came on Friday after Super Micro Computers (SMCI) failed to raise its outlook. News like that from such an important supplier of AI devices triggered even more selling across the technology sector.

Other major growth companies also fell. Tesla (TSLA), which reports earnings tomorrow afternoon, slid on a Deutsche Bank downgrade and Cybertruck recall. Apple (AAPL) hit the lowest price since last May on worries about iPhone demand. Netflix (NFLX) also dropped after announcing it would stop reporting subscriber numbers.

Rate Cuts at Risk?

The Federal Reserve might need to delay interest-rate cuts because “recent data have clearly not given us greater confidence” that inflation is slowing, Chair Jerome Powell said on Tuesday. Raphael Bostic of the Atlanta Fed suggested a single rate cut might occur. Even Austan Goolsbee, a vocal dove in late 2023, said high shelter costs could make it “hard to see a smooth path back to our 2 percent inflation goal.”

CME FedWatch tool, showing potential interest rates after the December Fed meeting. Notice how the most likely rate has increased in the last month.

Retail sales also grew by twice the expected amount in March and were revised higher for February. The International Monetary Fund even raised its forecast for growth this year, in part because of strength in the U.S.

All that news further diminished hopes of interest-rate cuts. CME’s FedWatch tool now suggests markets anticipate a single move late this year. That’s a big difference from the 5-7 reductions expected in December and the three anticipated last month.

Dow Jones Rises

Biggest Gainers in the S&P 500 Last Week
United Airlines (UAL)+23%
UnitedHealth (UNH)+14%
Paramount (PARA)+13%
Globe Life (GL)+13%
Genuine Parts (GPC)+12%
Source: TradeStation Data

Despite broad selloffs in technology and the Nasdaq-100, the Dow Jones Industrial Average bounced slightly after two negative weeks. Utilities, consumer staples, financials and health care also advanced.

Airlines were the strongest group after United Airlines (UAL) and Alaska Air (ALK) beat estimates. UnitedHealth (UNH) also rebounded from a 2-1/2 year low on strong results.

Aside from semiconductors, biotech, software and homebuilders were some of the big decliners last week.

Overall, the market is showing signs of a shift toward “value” stocks and away from “growth.” That’s potentially consistent with the pattern in 2022 as investors braced for higher interest rates.

Charting the Market

The S&P 500 is in the midst of its longest losing streak since October 2022 after falling for six straight sessions. The index tried to hold the March 5 low of 5057 last week before declining to 4947. That was its lowest level (and its first close below 5,000) since February 21.

Traders may next watch the weekly lows of 4946 and 4920 for potential support. Below that is the January 31 low of 4845.

S&P 500, daily chart, with key levels and indicators. Notice how Wilder’s Relative Strength Index (RSI) is nearing oversold territory.

While investors may want to buy the pullback, some may wait for more evidence of the short-term downtrend stopping.

They could also keep watching the yield on the 10-year Treasury note. It paused last week at an important level from the first half of November, but it might be in a longer-term uptrend. Some investors may wait for signs of yields peaking before wanting to buy stocks again.

The Week Ahead

Biggest Decliners in the S&P 500 Last Week
Super Micro Computer (SMCI)-21%
Tesla (TSLA)-14%
Nvidia (NVDA)-14%
Prologis (PLD)-13%
Micron Technology (MU)-13%
Source: TradeStation Data

Two economic events this week could have a big impact on sentiment: gross domestic product on Thursday and PCE inflation on Friday. Three of the market’s six trillion dollar companies also report earnings: Meta Platforms (META), Microsoft (MSFT) and Alphabet (GOOGL).

Today’s big names include Verizon Communications (VZ) and and Cadence Design Systems (CDNS).

General Electric (GE), General Motors (GM), Tesla (TSLA) and Visa (V) are some of the big names tomorrow. New home sales are also due.

Wednesday’s roster includes Boeing (BA) in the morning and META after the closing bell. Other items include durable-goods orders and crude-oil inventories.

Thursday morning brings the government’s initial reading of gross domestic product in the first quarter. It includes some inflation data, which can impact interest rates. Initial jobless claims are also due. The afternoon features results from MSFT and GOOGL.

The Personal Consumptions Expenditures (PCE) index, another inflation reading, is on Friday morning. Exxon Mobil (XOM) and Chevron (CVX) report earnings as well.

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