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Semiconductor Stocks Tumble After Trump Comments
The tech-heavy Nasdaq Composite index fell 2.8% in New York, marking its worst day since December 2022. The S&P 500 index was 1.4% lower, ending a three-session winning streak.
What Happened?
Former US President Donald Trump said Taiwan should pay for its own defense, and the US was reported to be considering tougher restrictions on trading chips with China. This news sent semiconductor stocks tumbling, with Nvidia down 6.6% and AMD falling 10.2%. In Europe, ASML had its worst day since 2020 with an 11% drop.
Why Did Investors Panic?
Investors have become accustomed to non-stop good news from tech stocks, so the slightest bit of negativity caught them off guard and caused panic on the markets. The rout wiped $496 billion off the market value of stocks in the Philadelphia Semiconductor index, which includes Nvidia, TSMC, and Intel.
The Impact on Chip Stocks
The US-listed shares of Taiwan Semiconductor Manufacturing Co slipped 8%. "The semi stocks are getting it from both sides of the political aisle," said Steve Sosnick, chief markets strategist at Interactive Brokers. "If the rotation from outperforming tech morphs into a bigger rout in the megacap stocks that have been driving the bus, then there is really no place for investors to hide."
The Role of Political Risk
Ajay Rajadhyaksha, global chair of research at Barclays, said the moves reflected investors’ heightened focus on political risk, the much higher odds over the past three weeks of Trump winning the US election, and a continuation of the "very aggressive rotation trade" away from large-caps and towards smaller companies.
What’s Next for Chip Stocks?
Christophe Fouquet, chief executive of Netherlands-based ASML, the leading supplier of high-end chipmaking equipment, said he was confident the chip industry would recover next year, driven largely by AI, but admitted to a "lot of uncertainty" around its pace and shape.
The Impact on Large-Cap Stocks
Large-cap stocks, which have driven much of the US equity market’s gains this year, are now under pressure. "If the rotation from outperforming tech morphs into a bigger rout in the megacap stocks that have been driving the bus, then there is really no place for investors to hide," said Steve Sosnick, chief markets strategist at Interactive Brokers.
Conclusion
The recent decline in semiconductor stocks is a reminder of the unpredictable nature of the stock market. Investors are closely watching the US election and the impact it may have on the tech sector. As the election approaches, it’s essential to stay informed and adapt to changing market conditions.
FAQs
Q: Why did semiconductor stocks decline?
A: Semiconductor stocks declined due to former US President Donald Trump’s comments that Taiwan should pay for its own defense and the US was considering tougher restrictions on trading chips with China.
Q: What is the impact on the US equity market?
A: The decline in semiconductor stocks has wiped $496 billion off the market value of stocks in the Philadelphia Semiconductor index, which includes Nvidia, TSMC, and Intel.
Q: What is the role of political risk?
A: Political risk is playing a significant role in the decline of semiconductor stocks, with investors becoming increasingly focused on the outcome of the US election and its potential impact on the tech sector.
Q: What’s next for chip stocks?
A: According to Christophe Fouquet, chief executive of ASML, the chip industry is expected to recover next year, driven largely by AI, but there is "a lot of uncertainty" around its pace and shape.
Q: What are the implications for large-cap stocks?
A: Large-cap stocks, which have driven much of the US equity market’s gains this year, are now under pressure. If the rotation from outperforming tech morphs into a bigger rout in the megacap stocks that have been driving the bus, then there is really no place for investors to hide.
Author: www.ft.com
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