Nasdaq 100 Drops 1.15% Amid Further Pessemistic Chipmaker Guidance; Micron Dips 3.75%

Key Points

• The major US equity indices fell across the board on Tuesday, led by downside in chipmakers amid further pessimistic guidance.
• The Nasdaq 100 dipped 1.15%, but remained above the 13,000 level.
• Hotter than expected Q2 Unit Labor Cost growth added to inflation worries, likely also weighing on sentiment somewhat.

Chipmakers Weigh on the Nasdaq 100 After Pessemistic Micron Revenue Guidance

The major US equity indices fell across the board on Tuesday, led by downside in chipmakers amid further pessimistic guidance, this time from Micron Technology. But the major indices for the most part remain close to recent multi-week highs, with investors in wait-and-see mode ahead of Wednesday’s US Consumer Price Index data release.

The tech/growth stock dense Nasdaq 100 index was unsurprisingly the underperformer out of the major US indices, dropping over 1.0% on the day, though managing to hold above the 13,000 level. Micron cut its revenue forecast and warned investors of the likelihood it would see negative free cash flow in the near future amid waning demand for its chips as the personal computer and smartphone market weakens.

Micron’s gloomy update comes a day after the largest US chipmaker Nvidia issued a revenue warning to investors ahead of its earnings release on 24 August. The Philadelphia Semiconductor Index (SOX), which is comprised of US chipmakers, tanked over 4.0% on Tuesday, taking its gains since last week’s highs to around 7.0%. The likes of Intel, AMD and Western Digital have all also recently issued pessimistic revenue guidance and warned about softening demand for their products. Despite this, the SOX index is still about 20% up from the annual lows it printed in early July.

Hot Q2 Unit Labor Cost Figures Add to Woes

The S&P 500, meanwhile, dropped about 0.4%, while the Dow Jone Industrial Average was down 0.2%. The worst performing of the eleven S&P 500 GICS sectors was Consumer Discretionary, which lost 1.5%. Information Technology was the next worst, losing 1.0%. Energy was the best performer, following a 1.8% gain, despite WTI prices ending the day broadly flat.

Data released on Tuesday showed US Nonfarm Productivity sliding 4.6% QoQ in Q2, roughly in line with expectations, while Unit Labor Costs surged 10.8% QoQ, above the expected gain of 9.5%, although lower than Q1’s 12.7% QoQ gain, probably weighed on sentiment a touch. Analysts said Tuesday’s data highlighted the fact that the US labor market remains tight and inflation concerns high. Rising wages can feed into higher consumer price inflation.

Traders were last pricing about a 70% chance that the Fed lifts interest rates by 75 bps for a third time in a row in September. Recent stronger than expected data (ISM PMI surveys and the US jobs report last week, plus this week’s data) and hawkish commentary from Fed policymakers have seen markets pare back on dovish bets made in late July that the Fed might slow the pace of tightening given a weakening economy.

Analysts said that traders could price in an even higher likelihood of a 75 bps rate hike in September if Wednesday’s US inflation figures print to the upside of expectations, which could weigh on equity market sentiment.