US close: Dow hits another high, but tech stocks tank the Nasdaq

dl wall street times square new york city night pedestrians nasdaq billboards trading nyc generic nypd unsplash — Sharecast / Meric Dagli via Unsplash

US stocks finished in mixed fashion on Wednesday with the Dow setting another record high but the S&P 500 and Nasdaq sinking sharply, with the latter experiencing its worst one-day sell-off in well over a year.

Concerns about government intervention in the semiconductor market tanked chip stocks, causing the Nasdaq to sink 2.77% to 17,996.92 – its first time below the 18,000 level in two weeks and the worst daily performance since December 2022.

“Investors have got used to non-stop good news from tech stocks, so the slightest bit of negativity has caught people off guard and caused panic on the markets," said Dan Coatsworth, investment analyst at AJ Bell.

“A lot of people have got rich thanks to the AI narrative fuelling a mega rally in tech stocks, but today’s correction is an important reminder that the sector is far from risk-free.”

Weakness in the tech sector was also weighing on the S&P 500, which fell 1.39% to 5,588.27 as it pulled back after setting its 38th record close of the year the previous session. The Dow, however, gained another 0.59% to finish at another all-time closing high of 41,198.08 – its third record in a row.

Economic data in focus

On the macro front, US mortgage applications surged 3.9% week-on-week, according to the Mortgage Bankers Association of America, erasing the prior two week's declines and marking the sharpest increase in a month. Applications to refinance a mortgage soared 15%, offsetting a 3% drop in applications to purchase a home.

US homebuilding activity picked up in June, according to the Department of Commerce, rising 3.0% to reach an annual rate of 1.35m. In parallel, the number of permits issued for new home construction jumped by 3.4% over the month to reach 1.446m but those for single-family homes dropped by 2.3%.

Finally, industrial production jumped in June, led by a surge in output from utilities. According to the Department of Commerce, in seasonally adjusted terms industrial output was up 0.6% over the month, beating the 0.3% consensus estimate. The degree of capacity in use increased by five-tenths of a percentage point in comparison to the month before to reach 78.8%

Chip stocks sink

Advanced Micro Devices, Nvidia, Lam Research, ASML, Broadcom and Qualcomm all suffered heavy losses on Wednesday on the back of concerns that heightened trade tensions between the US and China might hit operations.

Market chatter suggested that both Joe Biden and Donald Trump are considering tighter controls on cross-border relationships in the semiconductor manufacturing sector as part of their election campaigns. Trump in particular suggested that Taiwan should pay the US for its protection from China, risking damaging relations between the two countries.

"That could be problematic given that TSMC (Taiwan Semiconductor Manufacturing Company) is a major partner to both ASML and stock market darling, Nvidia," said AJ Bell's Coatsworth.

Johnson & Johnson's stock was in the green after the pharmaceutical giant reported second-quarter earnings and sales that surpassed analysts' expectations, largely driven by its innovative medicines segment.

GitLab surged 9% following a report it is exploring a sale after attracting acquisition interest. Reuters cited people familiar with the matter as saying that the US provider of cloud-based software development tools is working with investment bankers on a sale process that has attracted interest from peers, including cloud monitoring firm Datadog.

Also rising strongly was VF Corp on the news it is selling its streetwear brand Supreme to EssilorLuxottica for $1.5bn. The company had said recently that Supreme's business model – focused on frequent, weekly and limited product drops – presented "unique risks". Investors gave their sign of approval of the sale, with shares rising nearly 14%.

Dow Jones - Risers

Unitedhealth Group Inc. (UNH) $573.28 4.45%
Johnson & Johnson (JNJ) $156.58 3.69%
Cisco Systems Inc. (CSCO) $48.52 2.32%
Chevron Corp. (CVX) $161.23 2.19%
JP Morgan Chase & Co. (JPM) $216.87 1.52%
Procter & Gamble Co. (PG) $169.44 1.49%
Walmart Inc. (WMT) $71.09 1.49%
Coca-Cola Co. (KO) $65.21 1.46%
McDonald's Corp. (MCD) $261.00 1.45%
Verizon Communications Inc. (VZ) $42.03 1.40%