Stock market focuses on semiconductor firms on Wall Street
The upcoming US inflation data, expected to show a slight rise in inflation to around 2.8% annual CPI with a core inflation increase to about 3%, is set to intensify speculation about the Federal Reserve’s monetary policy tightening. This includes potential interest rate hikes.
This inflation data, combined with surging producer prices, is fueling expectations that the Fed may maintain or increase rates to control inflation. This tendency raises borrowing costs and can slow economic growth.
For the US stock market, this inflation and Fed stance is creating volatility. The tech sector and semiconductors face mixed impacts. Semiconductor stocks like Intel, Nvidia, and AMD are specifically affected by a combination of inflation-driven Fed policy expectations and trade/market dynamics related to China.
Intel, recently gained on rumors of increased government investment, faces operational and credit challenges, reflecting caution amid tightening monetary policy.
Nvidia and AMD benefit from strong AI demand and innovation leadership and are positioned to capture growth despite the inflation environment. However, the new US-China chip export deal includes a 15% US government revenue share on their China sales, introducing a political tariff that pressures profit margins and creates earnings uncertainty.
Inflation-driven Fed tightening typically raises discount rates, which can weigh on high-growth tech and semiconductor valuations. However, the AI-driven growth prospects of Nvidia and AMD are balancing these pressures, leading to greater divergence between these firms and more traditional players like Intel.
As Wall Street closed lower before the release of inflation data, the Dow Jones fell 0.4%, Nasdaq lost 0.3%, and S&P 500 shedded 0.3%. However, Micron shares rose 4 percent after the US semiconductor company raised its revenue and adjusted earnings guidance for the fourth quarter.
The rise in Intel shares was due to a report of a scheduled visit by CEO Lip-Bu Tan to the White House. Nvidia and AMD each fell by about 0.3% in individual stocks. WeightWatchers (WW International) had a rollercoaster ride. The stock initially rose by more than 8 percent, but ultimately closed 12.3 percent lower, attributed to a 55 percent increase in clinical subscription revenue in the quarter.
The upcoming report on US consumer prices (CPI) for July is considered significant due to its potential impact on the monetary policy of the US Federal Reserve. The US-China trade dispute was less influential, as President Trump extended the deadline for a resolution by another 90 days. There is uncertainty about the number of potential rate cuts, with experts questioning whether there will be three or two.
According to Jamie Cox, managing partner of Harris Financial Group, markets are focused on interest rates, and the inflation data will significantly move the markets this week. Michael Matousek, trader at US Global Investors, said that many people are unsure about the implications of this government levy on the margins of chipmakers.
In summary, the upcoming inflation figures reinforcing Fed rate hike expectations will likely lead to continued volatility in the US stock market, with semiconductor stocks experiencing differentiated impacts: Nvidia and AMD may outperform due to AI growth potential despite margin pressures, while Intel’s recovery is more tentative amid operational issues and tighter credit.
- The Commission, being consulted on the draft of the upcoming US policy changes, may need to consider the potential impacts of increased interest rates and tightened monetary policy on finance-related businesses and investing, as these factors could significantly influence the financial health of various sectors, including gadgets and technology firms.
- In light of the anticipated inflation increase and the Fed's potential monetary policy tightening, businesses in the finance and investing sectors might reconsider their strategies for investing in technology-driven gadgets and semiconductor companies, given the likelihood of increased borrowing costs and subsequent economic slowdown.
- As discussions surrounding the US-China chip export deal progress, the finance industry's focus on evaluating the effects of the government revenue share on semiconductor companies' profit margins becomes crucial, given the impact it could have on the stocks of these tech companies, particularly Nvidia and AMD, and their overall growth prospects.
