Wall Street falls as investors look beyond megacap shares

By Lisa Pauline Mattackal and Ankika Biswas

(Reuters) – The Nasdaq and the bounced back on Thursday, boosted by a recovery in megacaps, as an upbeat forecast from Taiwan Semiconductor Manufacturing lifted chip stocks after a sharp sell-off in the previous session.

U.S.-listed shares of TSMC jumped 2.1% after the world’s largest contract chipmaker raised its full-year revenue forecast on surging demand for AI chips.

Apple (NASDAQ:) and Nvidia (NASDAQ:), both TSMC customers, rose 0.5% and 2.4%, respectively.

Other chipmakers such as Advanced Micro Devices (NASDAQ:), Intel (NASDAQ:) and Marvell Technology (O:) also rose between 0.4% and 2%.

This comes after chip stocks lost over $500 billion in market value on Wednesday, following a report that the U.S. was considering tighter curbs on exports of advanced semiconductor technology to China, as well as Trump’s Taiwan comments.

The rose 1.4% after logging its worst day in four years on Wednesday.

Most of the so-called “Magnificent 7” stocks rose, including Microsoft (O:), Tesla (NASDAQ:) and Meta Platforms (O:).

The S&P 500 Tech index led sectoral gains with a 1% rise, while Healthcare was the worst hit.

This quarterly earnings season will be a significant test for whether expensively valued megacaps can keep investors satisfied with strong results.

“Risks in the technology sector got pointed out yesterday, with continuing trade issues between the U.S. and China,” said Paul Nolte, senior wealth adviser and market strategist for Murphy & Sylvest.

In corporate results, Domino’s Pizza (NYSE:) slumped 12.7% after falling short of estimates for quarterly same-store sales.

Homebuilder D.R. Horton jumped 8.1%, reversing its premarket course after higher quarterly profit and a $4-billion share buyback plan, lifting the PHLX Housing index to a record high.

The small-cap Russell 2000 () rose 0.10% after snapping a five-day winning streak in the previous session.

Nolte expects the rotation from large tech stocks to small-cap and value companies to continue, although “not in a straight line”.

The Dow, however, was flat after the index notched its third consecutive closing high in the last session.

Elsewhere, the Labor Department reported jobless claims rose to 243,000 for the week ended July 13 – higher than previously forecast – another signal that the jobs market was cooling.

Traders are pricing in a 93.5% chance of a 25-basis-point rate cut from the Federal Reserve by September, according to CME’s FedWatch.

Comments from Fed officials Lorie Logan, Mary Daly and Michelle Bowman are also expected later in the day.

At 9:39 a.m. ET, the was up 13.09 points, or 0.03%, at 41,211.17, the S&P 500 was up 18.07 points, or 0.32%, at 5,606.34, and the was up 102.41 points, or 0.57%, at 18,099.33.

Warner Bros Discovery (NASDAQ:) jumped 3.7% after a report that the CNN and HBO owner had discussed a plan to split its digital streaming and studio businesses from its legacy TV networks.

Netflix (NASDAQ:) rose 0.7% ahead of its results, due after markets close.

Advancing issues outnumbered decliners by a 1.07-to-1 ratio on the NYSE, and by a 1.17-to-1 ratio on the Nasdaq.

The S&P index recorded 15 new 52-week highs, while the Nasdaq recorded 25 new highs and nine new lows.