Wall St falls as chip stocks slide, Powell sticks to hawkish tone

By Sruthi Shankar and Johann M Cherian

[1/2]Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 27, 2023. REUTERS/Brendan McDermid

• Summary

• Companies

• Powell says dot plot suggests two more hikes
• Chip stocks slip on prospects of new curbs on China exports
• Annual banks stress test results due later
• Indexes down: Dow 0.33%, S&P 0.25%, Nasdaq 0.02%

June 28 (Reuters) – Wall Street indexes fell on Wednesday, pressured by a report the U.S. could curb sales of artificial intelligence (AI) chips to China, while Federal Reserve Chair Jerome Powell stuck to a hawkish tone that investors were largely anticipating.

Chipmakers Nvidia (NVDA.O) and Advanced Micro Devices (AMD.O) fell 2.0% and 1.4%, respectively, after the Wall Street Journal reported the Commerce Department could stop shipments of chips made by these companies to China as early as July.

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Semiconductor stocks including Intel (INTC.O) Applied Materials (AMAT.O) and Qualcomm (QCOM.O) fell more than 2% each, dragging the wider Philadelphia Semiconductor index (.SOX) down 1.3%.

U.S. stock indexes snapped their losing streak on Tuesday as upbeat economic data eased fears of an imminent U.S. recession, though it boosted the odds of the Fed hiking interest rates again next month.

Powell reiterated in a European Central Bank forum that most policymakers still see two rate increases this year and did not rule out more rate hike action at the U.S. central bank’s next meeting.

“Powell hasn’t changed his tone as has the rest of the panel,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

“He is reiterating what he said in the past that the next move depends on data, about whether there will be more hikes.”

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Traders now see a roughly 80% chance of the Fed hiking interest rates by 25 basis points to a 5.25%-5.50% range in July and expect the central bank to hold rates through the end of 2023, according to CMEGroup’s Fedwatch tool.

The S&P 500 and Nasdaq hit more than one-year highs last week while the Dow scaled a six-month peak before hawkish comments from Powell sparked a selloff.

Still, an AI-inspired rally in technology and growth stocks as well as hopes that the Fed would soon end its rate-hike campaign have put the main indexes on course for quarterly gains.

Markets are awaiting the Personal Consumption Expenditures (PCE) index, the Fed’s favored inflation gauge, initial jobless claims data and the final reading of first-quarter GDP later this week to assess the state of the U.S. economy.

Investors will also keep an eye on bank stocks, with the Fed scheduled to release 2023 results of its annual stress test of large banks after markets close on Wednesday.

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These results help determine how much capital banks need to be healthy and how much they can return to shareholders via stock buybacks and dividends.

At 9:57 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 112.74 points, or 0.33%, at 33,814.00, the S&P 500 (.SPX) was down 10.81 points, or 0.25%, at 4,367.60, and the Nasdaq Composite (.IXIC) was down 2.05 points, or 0.02%, at 13,553.63.

Eight of the 11 major S&P 500 sectors fell, with utilities (.SPLRCU) and consumer staples (.SPLRCS) leading losses.

Netflix Inc (NFLX.O) climbed 2.8% as brokerage Oppenheimer raised the video-streaming company’s price target to $500 from $450 in anticipation of higher subscribers.

General Mills (GIS.N) slid 4.6% after the packaged food maker forecast full-year profit below analysts’ estimates.

Declining issues outnumbered advancers for a 1.64-to-1 ratio on the NYSE and 1.29-to-1 ratio on the Nasdaq.

The S&P index recorded 27 new 52-week highs and two new lows, while the Nasdaq recorded 26 new highs and 53 new lows.

Reporting by Sruthi Shankar and Johann M Cherian in Bengaluru Editing by Vinay Dwivedi