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

Chipmakers Influence the Nasdaq 100 Taking into account Micron's dim revenue outlook

All of the major US stock market indices fell on Tuesday, with chipmakers suffering the most as a result of yet another unfavorable outlook, this time coming from Micron Technology. However, investors are taking a wait-and-see attitude until the release of the US Consumer Price Index data on Wednesday, so the main indices are still mostly trading at recent multi-week highs.

The Nasdaq 100 index, which is strongly weighted toward tech and growth sectors, underperformed among the major US indices, losing more than 1.0% on the day although remaining over the 13,000 level. Micron cut its sales forecast and warned investors that it was likely to face negative free cash flow in the near future due to the diminishing demand for its chips as the personal computer and smartphone industries degrade.

A day before to the release of its earnings on August 24, the largest US chipmaker, Nvidia, issued a sales warning to investors. Micron followed suit with its dismal announcement. The Philadelphia Semiconductor Index (SOX), which monitors US chipmakers, fell more than 4.0% on Tuesday, lowering its gains from the highs of the previous week to roughly 7.0%. Recently, businesses like Intel, AMD, and Western Digital all announced dismal sales projections and warning about waning consumer interest in their products. Despite this, the SOX index has increased by over 20% from its annual lows in early July.

Hot Q2 Unit Labor Cost Data Extend Issues

The S&P 500 dropped close to 0.4%, while the Dow Jones Industrial Average dropped 0.2%. Out of the eleven S&P 500 GICS sectors, Consumer Discretionary performed the worst, losing 1.5%.

Information technology was the next-worst sector, losing 1.0%. Energy was the best-performing sector, up 1.8%, despite the fact that WTI prices almost flattened out for the day.

According to statistics released on Tuesday, US nonfarm productivity decreased 4.6% QoQ in Q2, about in line with expectations. However, unit labor costs rose 10.8% QoQ, above the projected rise of 9.5% but falling short of Q1's 12.7% QoQ gain and likely lowering spirits a little. The data released on Tuesday, in the opinion of experts, demonstrated how tight the US labor market is still and how severe inflation worries are. Rising incomes may be a contributing factor to increased consumer price inflation.

Recently, traders projected that there was a 70% chance that the Fed will raise interest rates by 75 basis points for the third time in a row in September. In light of recent stronger-than-expected data (ISM PMI surveys, US jobs report last week, and this week's data), markets have decreased their dovish bets put in late July that the Fed may postpone the pace of tightening given a weakening economy.

Analysts predicted that if Wednesday's US inflation data prints higher than expected, it may negatively affect the equity market and lead traders to price in an even larger likelihood of a 75 basis point rate increase in September.