NEW YORK (AP) — Wall Street's record rally hit a wall Wednesday as worries about a worsening trade dispute with China hit shares of semiconductor companies, with indexes suffering their worst day in months, but things may not be so depressing beneath the surface.
The S&P 500 fell 1.3% from the previous day after hitting its 38th all-time high this year. The Nasdaq Composite Index fell 2.6% and is on track for its worst day since 2022. Market leaders such as Nvidia and Apple also lost ground.
However, advancers still outnumber decliners in the S&P 500 Index, with the Dow Jones Industrial Average up 234 points, or 0.6%, from its record high set the previous day as of 3:20 p.m. Eastern time.
The combination marks a continuation of a recent trend that market watchers are calling encouraging: More stocks are rising than just a few overwhelming elite names.Small-cap stocks in the Russell 2000 Index have risen sharply for a fifth straight day on hopes that interest rates will ease and the U.S. economy will avoid a recession, but the index gave up some of its gains on Thursday, falling 0.8%.
Market attention was on semiconductor companies, which fell sharply after Bloomberg reported that President Joe Biden is considering the toughest trade restrictions if companies such as Netherlands-based ASML and Japan's Tokyo Electron continue to export advanced semiconductor technology to China. Citing security concerns, the U.S. government has sought to block Chinese access to advanced semiconductors and the equipment that makes them, and urged allies to follow suit.
ASML's shares fell 12.7% in the U.S. despite reporting spring sales at the top end of its forecast range, while Tokyo Electron's shares fell 7.5% in Tokyo, paring this year's gains to 32.2%.
Taiwan Semiconductor Manufacturing Co. (TSMC), another major chipmaker, saw its shares fall after former President Donald Trump criticized the self-ruled islands claimed by China and which the United States is bound by treaty to defend if attacked.
“Taiwan should pay for our defense,” Trump said, according to a transcript of the interview published by Bloomberg. “Taiwan took our semiconductor business. How stupid of us,” he said.
TSMC's shares fell 7.3% in U.S. trading.
The repercussions were felt across semiconductor stocks around the world, including the U.S. giant that has become Wall Street's biggest star this year amid a frenzy over artificial intelligence technology. Nvidia fell 6.1% after soaring 155.2% so far this year.
Advanced Micro Devices fell 8.8% and Broadcom dropped 7%.
The performance of big tech stocks outweighs indexes like the S&P 500, which are weighted toward larger companies. That was a boon in recent years when a handful of companies known as the “Magnificent Seven” were able to soar largely independent of the broader economy and interest rates, helping to mask underlying weakness as the economy struggled with high interest rates aimed at taming inflation.
Now, some critics say the “Magnificent Seven” stocks are too expensive, and investors are starting to dip back into less-popular areas of the market. The economy has been surprisingly resilient so far, the job market remains strong, and investors are widely expecting the Federal Reserve to start cutting interest rates in September as inflation slows.
“The market cannot continue to rise forever on the back of a handful of stocks,” said JJ Kinahan, CEO of IG North America.
Johnson & Johnson, whose shares had fallen so far this year, rose 3.7% after its latest quarterly profit beat analysts' expectations. That was one of the biggest reasons the Dow Jones Industrial Average rose despite losses for the Magnificent Seven: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla.
U.S. Bancorp, which has lagged the broader market this year, rose 4.4 percent after profit and revenue beat analysts' expectations.
Among the Wall Street losers was Five Below, a retailer that sells items for under $5 to teenagers. The company's shares fell 24.3% after Chief Executive Joel Anderson resigned and a board member left the company. The company also announced a second-quarter profit outlook that fell short of analysts' expectations.
Shares of low-cost carrier Spirit Airlines fell 11.4% after the company cut its second-quarter earnings outlook and said non-ticket fee revenue was lower than expected.
In the bond market, the yield on the 10-year Treasury note fell to 4.15% from Tuesday's close of 4.16%.
Overseas stock markets, London's FTSE 100 index rose 0.3% after data showed inflation stabilizing at the Bank of England's 2% target for June. Indexes elsewhere in Europe and Asia were mixed.
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AP Business Writer Elaine Kurtenbach contributed.
