Wall Street set to fall as megacap chip, tech stocks tumble

By Lisa Pauline Mattackal and Ankika Biswas

(Reuters) -Nasdaq futures shed over 1% on Wednesday, leading losses among the main U.S. indexes as megacap chip and tech stocks tumbled in a broad market decline amid a deluge of corporate results and the prospect of tougher trade restrictions on Chinese chips.Megacaps such as Apple (NASDAQ:), Microsoft (NASDAQ:) and Meta Platforms (O:) lost between 1% and 2% before the opening bell.

Shares of semiconductor companies also fell, with AI-chip favorite Nvidia (NASDAQ:) sliding 3.5% and ASML (AS:)’s U.S.-listing dropping 7.5% after a report the Biden Administration was considering severe trade restrictions as part of a crackdown on Chinese chips.

Elsewhere, U.S.-listed shares of Taiwan Semiconductor Manufacturing shed 4.3% after Republican presidential candidate Donald Trump said Taiwan should pay the U.S. for its defense.

Marvell (NASDAQ:) Technology, Broadcom (NASDAQ:), Qualcomm (NASDAQ:), Micron Technology (NASDAQ:), Advanced Micro Devices (NASDAQ:) and Arm Holdings (NASDAQ:) were also down between 2.7% and 4%.

Wall Street’s “fear gauge” briefly touched a more than six-week high in early trading, signaling investor unease.

Trade Nation senior market analyst David Morrison cited profit-taking among the likely causes for Wednesday’s dip in futures.

The and the had closed at all-time highs on Tuesday.

After a blistering rally in tech companies since the last leg of 2023, investors are now moving to hitherto underperforming areas of the market on growing bets that the Federal Reserve is nearing the start of interest-rate cuts.

Futures tracking the fell 0.3% after the small-cap index rallied nearly 12% over the last five sessions.

“It could be the rally has been running on fumes recently… what we’re seeing now is a generalized pullback, which is totally consistent with consolidation and profit-taking after record highs in the major indices,” Morrison said.

Firmer bets on a Fed rate cut in September as well as rising expectations that former President Donald Trump will be back in the White House in November following the attempt on his life have helped lift stocks over the past few sessions.

Investors will focus on comments from Fed officials Thomas Barkin and Christopher Waller later in the day for clues on how policymakers have assessed recent inflation, employment and retail sales data.

On the earnings front, J&J (NYSE:) slipped 0.4%, but pared losses after the drug and device maker lowered its annual earnings outlook.

In the day’s economic data, housing starts and industrial production data for June are due before market open.

At 7:02 a.m. ET, were down 86 points, or 0.21%, were down 46.5 points, or 0.81%, and were down 264 points, or 1.28%.

Among others, U.S. drugmaker Eli Lilly (NYSE:) fell 2.8% after Swiss rival Roche’s promising early-stage data from an experimental obesity pill, which it acquired as part of its buyout of Carmot Therapeutics.

Trucking firm JB Hunt (NASDAQ:) Transport Services fell 3% following a 24% drop in second-quarter profit.

Spirit Airlines (NYSE:) slumped 6.6% after lowering its second-quarter revenue outlook, citing lower-than-expected non-ticket revenue.