S&P500 and Nasdaq Index: Semiconductor Selloff Threatens Bull Run

Semiconductor Stocks Face Pressure Amid Potential Trade Restrictions

Stock futures dipped on Wednesday following a record-setting session for the Dow Jones Industrial Average. The semiconductor sector led the decline, reacting to reports of potential tighter trade restrictions.

At 11:31 GMT, Dow Futures are trading 41130.00, down 125.00 or -0.30%. S&P 500 Index futures are at 5661.00, down 56.25 or -0.98% and Nasdaq 100 Index futures are trading 20291.75, down 306.25 or -1.49%.

Biden Administration Considers Stricter Measures

Bloomberg News reported that the Biden administration is contemplating tougher trade restrictions if companies continue providing China access to U.S.-made semiconductor technology. This news sent ripples through the chip sector, with the VanEck Semiconductor ETF (SMH) falling nearly 3% in premarket trading.

Key Players Affected

Industry giants Nvidia and Taiwan Semiconductor saw their U.S.-listed shares drop 3% each in premarket trading. Other major players like ASML, Tokyo Electron, and Applied Materials also experienced significant declines. ASML’s Netherlands-listed shares fell 6.5%, while Tokyo Electron shares in Japan closed nearly 7.5% lower.

Geopolitical Tensions Add to Uncertainty

Former President Donald Trump’s recent comments about Taiwan have further unsettled the semiconductor market. Trump suggested that Taiwan should pay the U.S. for defense and claimed that Taiwan had taken “about 100%” of America’s semiconductor business. These remarks raised questions about the U.S.’s commitment to defend Taiwan in the event of Chinese aggression.

Broader Market Context

The potential crackdown on chip exports comes amid a broader market rally. The Dow recently surged over 700 points to a record high, while small caps, represented by the Russell 2000, have shown strong performance. This rally has been partly fueled by optimism around potential interest rate cuts.

Impact on Other Sectors

The pharmaceutical sector also saw significant movement, with Novo Nordisk and Eli Lilly shares sliding after Roche announced promising early-stage trial data for its latest obesity drug candidate. Roche shares jumped 5.87%, while Novo Nordisk fell 3.77% and Eli Lilly was down 2.7% in premarket trading.

Market Forecast

The semiconductor sector, along with the S&P 500 and Nasdaq 100, faces a bearish short-term outlook due to geopolitical tensions and potential trade restrictions. However, the broader market remains bullish, supported by expectations of interest rate cuts and a broadening rally beyond tech stocks. The Russell 2000’s recent performance, closing 4.4 standard deviations above its 50-day moving average, indicates strong momentum in small caps.

Traders should closely monitor developments in U.S.-China relations and any official announcements regarding semiconductor export controls. These factors could significantly impact market direction in the coming weeks, particularly for tech-heavy portfolios and those exposed to U.S.-China trade.

Technical Analysis

E-mini Nasdaq-100 Index futures are trading sharply lower on Wednesday after trading the short-term trend to down. Additionally, the tech-weighted index dropped to the weak side of a short-term pivot at 20354.75, indicating increasing selling pressure.

If downside momentum continues to build then look for an acceleration to the downside with the next target another pivot at 19742.25, followed closely by the uptrending 50-day moving average at 19558.16. This is major support.