Chip Stock Sell-off Puts Downward Pressure on Broader Market

The S&P 500 Index ($SPX) (SPY) on Friday fell -0.08%, the Dow Jones Industrial Average ($DOWI) (DIA) rose +0.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell -1.27%.  September E-mini S&P futures (ESU26) fell -0.08%, and September E-mini Nasdaq futures (NQU26) fell -1.34%.

A sharp sell-off in chip stocks put downward pressure on the overall market Friday, with the iShares Semiconductor ETF (SOXX) falling by more than -4%.  Chip stocks fell amid ongoing concerns about the sustainability of AI demand, even though Intel forecast a sharp short-term increase in Q3 sales tied to data center demand. 

Another bearish factor was President Trump’s new tariff regime on 60 nations and his threat of new EU tariffs in retaliation for the EU’s $1 billion fine for Alphabet.  Also, the markets are worried that the US might expand its military attacks on Iran, as President Trump said he is considering. 

On the bullish side, WTI crude oil prices fell by -3% as oil shipments in the Red Sea continue despite Houthi threats.  Stocks also saw support as the 10-year T-note yield fell -1.4 bp.

President Trump late Thursday announced broad tariffs ranging from 10% to 12.5% on 60 nations, replacing the 10% global import tax that expired.  The new tariffs are based on trade authority under Section 301 of the Trade Act of 1974 tied to a claim of forced labor in supply chains.  Mr. Trump had to seek new trade authority after the Supreme Court struck down his so-called reciprocal tariffs in February.  Mr. Trump replaced the reciprocal tariffs with a 10% global import tax that expired Friday.

The new forced-labor tariffs exclude some key items such as fuel, foods, fertilizer, and products covered by the North American trade agreement with Mexico and Canada.  The new tariffs also exclude automobiles, metals, and drugs, which are covered by tariffs based on a different trade authority.  The Trump administration has a raft of other Section 301 investigations underway that could be used to impose more tariffs in the future, stacked on top of today’s forced-labor tariff.

Sep WTI crude oil prices (CLU26) fell -3.12% on Friday, reversing about half of Thursday’s +6.17% rally.  Meanwhile, Sep Brent crude oil prices (CBU26) fell back to the $97-per-barrel area after hitting a 2-month high of $102 on Thursday.  Oil prices fell as oil tankers continued to move through the Red Sea despite Houthi threats, with some oil tankers turning off their location transponders.

WTI oil prices soared by more than +6% on Thursday after the Iran-backed Houthis launched a missile and drone attack on two Saudi Arabian oil tankers in the Red Sea, expanding the oil disruptions beyond the Strait of Hormuz and threatening oil shipments in the Red Sea.  President Trump responded by saying on Thursday that he holds Iran responsible for the Houthi attacks and telling Axios in an interview that he is considering a "massive attack" that would be "bigger than ever before" and is "close to making a decision on it."

The Houthis have vowed to blockade shipping linked to Saudi Arabia and warned shipowners against calling at the nation's ports.  The move threatens Saudi oil exports from Yanbu, a Red Sea hub that the Saudi's are using to ship crude since the war brought shipping through the Strait of Hormuz to a near halt.

Friday’s US PMI report was mixed for the dollar.  The S&P July manufacturing PMI fell slightly by -0.1 point to 53.8, weaker than expectations for a +0.5 point increase to 54.4. However, the S&P July services PMI rose by +2.4 points to 53.6, which was stronger than expectations for a +0.3 point increase to 51.5.

US June new home sales rose by +1.6% m/m to 628,000 from a revised May level of 618,000 (preliminary 580,000), which was stronger than expectations of 607,000.  However, June building permits fell -2.6% to 1.374 million.

The outlook for strong Q2 earnings, which began in earnest this week, 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.  So far, earnings results have been positive, with 89% of S&P 500 companies that reported Q2 earnings beating estimates, according to data compiled by Bloomberg. 

The markets are discounting a 38% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets on Friday closed mixed.  The Euro Stoxx 50 closed up +1.14%.  China's Shanghai Composite closed down -1.61% on Friday.  Japan's Nikkei-225 Stock Average closed down -2.73%.

Interest Rates

September 10-year T-notes (ZNU6) on Friday rose +6.5 ticks.  The 10-year T-note yield fell -1.4 bp to 4.679%, down from the 1.5-year high of 4.712% posted early in the session.  The 10-year T-note yield rose by a net +13 bp this week on inflation concerns tied to the surge in oil prices and President Trump’s new round of tariffs.  Yet, the T-note yield Friday fell back as the 10-year inflation expectations rate fell by -1.9 bp to 2.245%, tied in part to the idea that the surge in oil prices and the new tariffs will dampen US economic growth and possibly cause the Fed to be less hawkish. 

European government bond yields traded lower.  The 10-year German bund yield fell -3.0 bp to 3.172%, down from Thursday’s 15-year high of 3.128%.  The 10-year UK gilt yield fell -7.0 bp to 5.032%, down from Thursday’s 2-month high of 5.122%.

The ECB at its policy meeting on Thursday left its key deposit rate unchanged at 2.25%, in line with market expectations.  The ECB said it left rates unchanged, awaiting further data to determine whether additional rate hikes are necessary to address the inflation outlook.  However, ECB President Christine Lagarde said, "Risks to the inflation outlook are to the upside." The markets are discounting a 90% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.

US Stock Movers

The Magnificent 7 closed mixed, stabilizing after Thursday’s sharp sell-off.  Alphabet (GOOGL) rose +0.65% on Friday after falling -7% on Thursday.  Tesla (TSLA) on Friday closed down -2%, adding to Thursday’s -14% plunge.  Apple (AAPL) closed the day up +3.53%.

The chip sector closed sharply lower on Friday, despite Intel's (INTC) blockbuster revenue forecast, on concerns about overspending on data centers and an AI bubble.  Intel forecasted Q3 revenue of $15.8-16.8 billion, well above the analyst consensus of $15.1 billion, with an expected +59% q/q surge in data center sales.  Despite that revenue forecast, Intel (INTC) fell more than -7%.  Other than Intel, chip companies that closed more than -5% lower included Arm Holdings (ARM), Marvell Technologies (MRVL), Micron Technology (MU), and GlobalFoundries (GFS).

Software stocks showed strength, rebounding higher after Thursday’s losses.  Atlassian (TEAM) closed up more than +8%, ServiceNow (NOW) closed up more than +7%, and Adobe (ADBE) closed up more than +6%.  Workday (WDAY) and Intuit (INTU) closed up more than +5%.

Oracle (ORCL) fell by more than -4% despite its favorable announcement of a 10-year contract with the US Department of Defense, valued at more than $3 billion for the first 5 years and possibly as much as $7 billion over 10 years.  Oracle fell amid market concerns about its heavy capital spending and data center exposure.

Charter Communications (CHTR) fell -1.47% after reporting an earnings miss.

Newmont Corp (NEM) fell -1.62% despite reporting favorable Q2 earnings and maintaining its full-year production guidance.

Earnings Reports (7/27/2026)

Rambus Inc (RMBS), Welltower Inc (WELL), Kilroy Realty Corp (KRC), Brown & Brown Inc (BRO), Principal Financial Group Inc (PFG), UDR Inc (UDR), Sanmina Corp (SANM), Nucor Corp (NUE), Sun Communities Inc (SUI), Universal Health Services Inc (UHS), Amkor Technology Inc (AMKR), F5 Inc (FFIV), Cincinnati Financial Corp (CINF), Element Solutions Inc (ESI), Applied Digital Corp (APLD), Cadence Design Systems Inc (CDNS), Brixmor Property Group Inc (BRX).