U.S. stocks opened lower on Tuesday, with the Nasdaq Composite underperforming as renewed weakness in semiconductor stocks overshadowed gains in consumer-focused companies. The tech-heavy index fell about 0.67%, while the S&P 500 declined 0.15%. The Dow Jones Industrial Average bucked the trend, rising roughly 0.59%, supported by strong earnings from Coca-Cola and Sherwin-Williams.
Investors remained cautious ahead of quarterly earnings from several of the largest technology companies and the Federal Reserve's interest rate decision later this week. The cautious sentiment followed a volatile start to the week, with the Nasdaq closing lower on Monday after another selloff in semiconductor stocks. The weakness also spilled over into Asian markets, where South Korea's Kospi briefly halted trading after falling sharply.
Chip stocks extend losses amid AI spending concerns
Chipmakers remained under pressure as investors continued reassessing the outlook for artificial intelligence infrastructure spending and growing competition from China. Micron Technology dropped more than 7.4%, while Intel declined nearly 5% and Applied Materials lost about 5.6%. U.S.-listed shares of Taiwan Semiconductor Manufacturing Co. (TSMC) and SK Hynix fell more than 2%, while Nvidia slipped 1.2%.
The VanEck Semiconductor ETF (SMH) fell another 3.3% after losing more than 3% in the previous session, extending its recent decline. The Roundhill Memory ETF also dropped sharply and has traded below its 50-day moving average for the past two weeks, reflecting weakening short-term momentum. Meanwhile, the Philadelphia Semiconductor Index has fallen more than 20% from its record high reached in June.
Investor sentiment has weakened as concerns grow over the scale of AI-related capital spending by major technology companies. Recent results from Alphabet and Tesla have heightened worries about rising cash burn, while Chinese advances in lower-cost AI models and semiconductor manufacturing have intensified competitive pressures. For more on the recent selloff, see our earlier coverage of AI spending doubts.
Despite the broader weakness in chip stocks, shares of Amazon, Microsoft, Meta Platforms and Apple traded modestly higher ahead of their earnings reports, which are expected to offer important signals on AI investment plans and infrastructure demand. Market participants are closely watching these results for fresh insight into AI spending and future demand for semiconductor products.
Fed decision, earnings, and oil remain key market drivers
Beyond earnings, investors are also focused on the Federal Reserve's policy announcement scheduled for Wednesday. Markets largely expect the central bank to leave interest rates unchanged this week, although traders continue to price in the possibility of a 25-basis-point rate increase later this year. Investors will also closely examine the Fed's outlook for inflation and monetary policy, particularly as higher borrowing costs could increase financing pressure on companies making large AI infrastructure investments.
Oil prices provided some relief to broader markets by extending Monday's sharp declines. Brent crude fell around 1.7% to about $86.82 per barrel, while West Texas Intermediate crude dropped roughly 1.6% to around $81.31 per barrel. Crude prices eased as diplomatic discussions involving Iran, Saudi Arabia, and Oman continued over reopening shipping through the Strait of Hormuz. Markets also responded to indications that the fragile ceasefire between the United States and Iran was holding, despite reports of drone attacks in Saudi Arabia, Jordan, and Iraq. For a look at potential opportunities in the energy sector, see our analysis of oil stocks.
Elsewhere, Coca-Cola rose more than 5% after raising its full-year revenue and profit outlook, while Walmart and Procter & Gamble gained more than 2%. Boeing also advanced after reporting positive free cash flow as its turnaround efforts continued. Johnson & Johnson climbed after announcing an estimated $5.5 billion settlement to resolve lawsuits related to its talc products.
The broader market remains in a wait-and-see mode as the Fed decision and Big Tech earnings dominate the narrative. The outcome of these events could set the tone for the remainder of the year, particularly for the technology sector and AI-related investments. For more on the impact of chip stock weakness on Asian markets, see our report on the Nikkei and Kospi declines.
This article is for informational purposes only and does not constitute financial advice.
