Weakness in Chipmakers Drags Stock Indexes Lower

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -0.22%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.54%.  September E-mini S&P futures (ESU26) fell -0.21%, and September E-mini Nasdaq futures (NQU26) fell -1.57%. 

Stock indexes settled lower on Wednesday, with the S&P 500 falling from a 1-week high and the Dow Jones Industrials retreating from a new all-time high.  The selloff in chipmakers and AI-infrastructure stocks led the broader market lower on Wednesday, giving back some of their sharp rally over the past two sessions.  Weaker-than-expected US economic news also weighed on stocks after the Jun ADP employment change rose less than expected and the Jun ISM manufacturing index fell more than expected. 

Losses in the overall market were limited amid strength in the Magnificent Seven technology stocks and a rally in software companies.  Also, US factory price pressures eased after the Jun ISM prices paid sub-index fell more than expected to a 4-month low.  Stocks also found support on comments from Fed Chair Warsh, who said price risks have come down in recent weeks and that he is determined to bring inflation back down to the Fed’s 2% target.

US MBA mortgage applications were unchanged in the week ended June 26, with the purchase mortgage sub-index up +0.5% and the refinancing mortgage sub-index down -0.7%.  The average 30-year fixed rate mortgage fell -2 bp to 6.57% from 6.59% in the prior week.

The US Jun ADP employment change rose by +98,000, showing a weaker labor market than expectations of +120,000.

The US Jun ISM manufacturing index fell -0.7 to 53.3, weaker than expectations of 53.9.  The Jun ISM prices paid sub index fell -9.1 to a 4-month low of 73.0, weaker than expectations of 77.5.

The outlook for strong Q2 earnings is a bullish factor for stocks. Forecasts compiled by Bloomberg Intelligence suggest Q2 earnings may increase by 23%, close to Q1’s blowout earnings of 30%, which was more than double the 12% analysts had expected.  AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2.   

WTI crude oil (CLQ26) fell more than -1% on Wednesday and posted a 4.25-month low.  Crude prices came under pressure on Wednesday after a senior US administration official said that US negotiators held positive discussions in Qatar and progress is being made on technical talks with Iran.  Also, the Wall Street Journal reported that President Trump had decided against resuming a broad military campaign against Iran and told his staff that he didn't mind if the negotiations extended beyond the August 18 deadline. 

The markets are discounting a 27% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets settled mixed on Wednesday.  The Euro Stoxx 50 closed down -0.72%.  China's Shanghai Composite climbed to a 1-week high and closed up +0.4%.  Japan's Nikkei-225 Stock Average closed up +0.59%.

Interest Rates

September 10-year T-notes (ZNU6) on Wednesday closed down -10 ticks, and the 10-year T-note yield rose +0.8 bp to 4.473%.  T-notes slid on Wednesday amid strengthening inflation expectations after the 10-year breakeven inflation rate rose to a 1-week high of 2.256%.  Losses in T-notes were limited after the Jun ADP employment change, and the Jun ISM manufacturing index came in below expectations.  Also, some short covering emerged in T-notes after Fed Chair Warsh said price risks have come down in recent weeks and that he is determined to bring inflation back down to the Fed’s 2% target.

European government bond yields were mixed on Wednesday.  The 10-year German bund yield rose +1.9 bp to 2.878%.  The 10-year UK gilt yield fell from a 1-week high of 4.817% and finished down -0.1 bp to 4.756%.

Eurozone Jun CPI eased to 2.8% y/y from 3.2% y/y in May, weaker than expectations of 3.0% y/y.  Jun core CPI eased to 2.4% y/y from 2.6% y/y in May, weaker than expectations of 2.5% y/y.

The Eurozone Jun S&P manufacturing PMI was revised upward by +0.1 to 51.4 from the previously reported 51.3.

ECB President Christine Lagarde said that risks to inflation and growth are now more broadly balanced than a few weeks ago, due to the recent slide in crude oil prices.

Swaps are discounting a 4% chance of a +25 bp ECB rate hike at its next policy meeting on July 23.

US Stock Movers

Chipmakers and AI infrastructure stocks were under pressure on Wednesday, weighing on the broader market.  The iShares Semiconductor ETF (SOXX) closed down more than -6%.  KLA Corp (KLAC) closed down more than -1%, and SanDisk (SNDK) closed down more than -10%.  Also,  Lam Research (LRCX), Applied Materials (AMAT), Micron Technology (MU), and Intel (INTC) closed down more than -9%, and Marvell Technology (MRVL) closed down more than -8%.  In addition, Advanced Micro Devices (AMD) closed down more than -7%, and Western Digital (WDC) closed down more than -6%. 

Nebius Group NV (NBIS) closed down more than -17% to lead losers in the Nasdaq 100, and CoreWeave (CRWV) closed down more than -13% as cloud-computing stocks fell on news that Meta Platforms is developing plans for a cloud infrastructure business to sell access to AI computing power and models.

Strength in the Magnificent Seven technology stocks supported the broader market on Wednesday.  Meta Platforms (META) closed up more than +8% after saying it is developing plans for a cloud infrastructure business to sell access to AI computing power and models.  Also, Microsoft (MSFT) closed up more than +3%, and Apple (AAPL), Tesla (TSLA), Alphabet (GOOGL), and Amazon.com (AMZN) closed up more than +1%.  Nvidia (NVDA) bucked the trend and closed down more than -1% amid weakness in chipmakers.

Software stocks rallied on Wednesday, a positive factor for the overall market.  Palantir Technologies (PLTR) closed up more than +7%, and Atlassian Corp (TEAM), ServiceNow (NOW), and Workday (WDAY) closed up more than +6%.  Also, Salesforce (CRM) closed up by more than +4% to lead gainers in the Dow Jones Industrials. In addition, Autodesk (ADSK) closed up more than +3%, and Intuit (INTU) and Adobe Systems (ADBE) closed up more than +2%. 

Alcoa (AA) closed down more than -8% after agreeing to acquire South32 Ltd.’s bauxite, alumina, and aluminum assets in a deal worth as much as $5.6 billion. 

Caterpillar (CAT) closed down more than -6% to lead losers in the Dow Jones Industrials after Scion Asset Management founder Michal Burry said he shorted Caterpillar shares for the first time. 

Walmart (WMT) closed down more than -3% after Cleveland Research issued a report on Walmart that said quarter-to-date trends have slowed. 

General Mills (GIS) closed up more than +8% after reporting Q4 adjusted EPS of 95 cents, stronger than the consensus of 80 cents. 

FactSet Research Systems (FDS) closed up more than +6% after reporting Q3 adjusted EPS of $4.53, better than the consensus of $4.43. 

Fox Corp (FOXA) closed up more than +3% after Wolfe Research upgraded the stock to outperform from peer perform.

MSC Industrial Direct (MSM) closed up more than +3% after forecasting Q4 average daily sales up +6.5% to +8.5%, the midpoint above the consensus of +6.99%. 

Earnings Reports(7/2/2026)

Lindsay Corp (LNN) and National Beverage Corp (FIZZ).