Semiconductor stocks pare losses on bargain buying; big tech, consumer shares slide

Market attention shifts to Fed's rate path after expected hike

The New York Stock Exchange. [Yonhap-Reuters]
The New York Stock Exchange. [Yonhap-Reuters]

US stocks fell for a second straight session Tuesday as oil prices surged past $100 a barrel and the 10-year Treasury yield briefly topped 5% during trading. Renewed fears over inflation and a prolonged high-rate environment weighed on sentiment, with investors also growing wary of the possibility of further rate hikes even after the Federal Reserve's expected move at its meeting Wednesday.

The Dow Jones Industrial Average dropped 328.09 points, or 0.63 percent, to close at 52,093.11 on Tuesday (local time). The S&P 500 fell 34.25 points, or 0.45 percent, to 7,585.73, while the NASDAQ Composite lost 204.84 points, or 0.78 percent, to finish at 25,981.57.

Semiconductor stocks bucked the broader trend, rebounding on bargain buying after Tuesday's sharp selloff. Nvidia gained 0.6 percent and AMD rose 2.2 percent, as investors moved in to pick up chip shares hit hard by concerns over slowing AI development. Major big-tech names moved in the opposite direction, with Alphabet, Microsoft and Apple all finishing lower.

Consumer-related stocks weakened on worries that high oil prices and rising interest rates would dampen spending. Chipotle and Dollar Tree each fell more than 5 percent. Virtual asset-related stocks also declined following the US Senate's failure to advance a crypto regulation bill, with Coinbase dropping more than 10 percent.

Rising Treasury yields were a key drag on the market. The 10-year yield climbed as high as 5.041 percent during trading, its highest level since July 2007. As of 3 p.m., it stood at 4.995 percent, up 3.5 basis points from the previous session. The 30-year yield also rose, reaching 5.362 percent.

Higher Treasury yields reduce the appeal of equities by lifting the return investors can earn from government bonds, which in turn raises the return they demand from stocks. Rising borrowing costs also weigh particularly on growth stocks, whose valuations rest heavily on expectations of future earnings.

A sharp surge in oil prices added to rate concerns. West Texas Intermediate for October delivery settled up 4.38 percent at $105.83 a barrel, while Brent crude for November delivery rose 2.90 percent to $108.75 — the highest closing levels for both benchmarks since May 19. Supply worries intensified after disruptions hit Saudi Arabia's east-west pipeline and the Yanbu crude terminal on the Red Sea, compounded by a shutdown at Libyan oil fields.

The oil rally adds to inflation pressure, complicating the Fed's rate decisions. Higher crude prices feed through to consumer prices via gasoline and transportation costs, and if inflation proves sticky, the Fed will find it harder to cut rates — raising the prospect of a prolonged high-rate environment.

A rate hike at the September meeting is widely treated as a foregone conclusion. According to CME FedWatch, the probability of a 25-basis-point increase priced into the fed funds futures market on Tuesday rose to 94.5 percent. Against that backdrop, investor attention is shifting to whether additional hikes will follow and what the Fed's broader rate path will look like. In a recent Reuters survey of economists, 37 of 70 respondents — 53 percent — forecast at least one more rate increase by the end of March next year.

Wednesday's Federal Open Market Committee meeting will also bring the release of the dot plot, which offers clues about the future rate path. The dot plot shows each FOMC member's projection for the benchmark interest rate going forward, with individual forecasts displayed anonymously, allowing markets to gauge the Fed's internal consensus by seeing where the dots cluster. Investors will parse both the dot plot and remarks by Fed Chair Jerome Powell for signals on the likelihood of further hikes after September and how long elevated rates may persist.


kacew@heraldcorp.com