Chip Stocks Sink Wall Street, Powell in Spotlight

Wall Street opened lower on Wednesday, pressured by a report the US could curb sales of artificial intelligence (AI) chips to China, while investors awaited Federal Reserve Chair Jerome Powell’s speech for clues on the interest rate outlook.

The Dow Jones Industrial Average fell 45.36 points, or 0.13%, at the open to 33,881.38. The S&P 500 opened lower by 10.93 points, or 0.25%, at 4,367.48, while the Nasdaq Composite dropped 49.66 points, or 0.37%, to 13,506.02 at the opening bell.

Why Chip Stocks Are Falling

Chipmakers Nvidia and Advanced Micro Devices fell 3.5% and 3.2%, respectively, in premarket trading after the Wall Street Journal reported the Commerce Department could stop shipments of chips made by these companies to China as early as July.

Semiconductor stocks including Intel, Marvell Technology and Qualcomm fell more than 1% each.

The report said the US government is considering adding more than a dozen Chinese companies to its entity list, which would restrict their access to US technology and products.

The move is seen as a response to China’s alleged human rights abuses and military ambitions in the region.

The chip sector has been under pressure from a global shortage of semiconductors, which has affected various industries including automobiles, consumer electronics and gaming.

Investors are focused on a panel discussion of key central bank policymakers including Powell and European Central Bank President Christine Lagarde at the ECB annual forum in Sintra, Portugal.

The session will begin at 9:30 a.m. ET (1330 GMT).

Powell is expected to reiterate his stance that the Fed is data dependent and will adjust its monetary policy according to the economic recovery and inflation trends3.

Traders have priced in a 76.9% chance that the Fed would hike interest rates by 25 basis points to 5.25%-5.50% in July and expect the central bank to hold rates through the end of 2023, according to CMEGroup’s Fedwatch tool.

The Fed surprised markets last week by signaling two rate hikes in 2023, sooner than previously anticipated, amid rising inflation concerns.

Investors are also awaiting the Personal Consumption Expenditures (PCE) index, the Fed’s favored inflation gauge, initial jobless claims data and the final reading of first-quarter GDP later this week to assess the state of the US economy.

Investors will also keep an eye on bank stocks, with the Fed scheduled to release 2023 results of its annual stress test of large banks after markets close on Wednesday.

These results help determine how much capital banks need to be healthy and how much they can return to shareholders via stock buybacks and dividends.

Bank stocks have been among the best performers this year, benefiting from rising bond yields, improving loan demand and expectations of higher interest rates.

However, some analysts have warned that bank stocks may have peaked as bond yields have retreated from their highs and the Fed’s hawkish stance could dampen loan growth.

Keywords: Chip Stocks Crash, Wall Street Tumbles, Powell Speech Awaited