Stock Indexes Give Back Gains as Chip-Stock Dip Buying Fades

The Nasdaq MarketSite Photographer: Michael Nagle/Bloomberg Photo by Michael Nagle /Bloomberg

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(Bloomberg) — US stocks gave back their gains as dip-buying in chipmakers and other tech shares stalled, despite speculation that lower oil prices and a weaker housing market may ease pressure on the Federal Reserve to hike interest rates.

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The S&P 500 Index erased earlier gains to be little changed by 2:23 p.m. in New York, testing its 50-day moving average as weakness in tech and energy stocks offset gains elsewhere. The Nasdaq 100 fell 0.5% to head for its third-straight day of declines, while the Dow Jones Industrial Average was up 0.4%.

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“Tech investors remain diffident after two sessions of aggressive selling — some dip buyers showed up earlier this morning, but they have moved to the sidelines,” Vital Knowledge founder Adam Crisafulli wrote.

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The Wednesday afternoon moves followed a sharp drop in the prior two sessions, when concerns about the scale of the artificial-intelligence-fueled rally wiped nearly $1.3 trillion from the market capitalization of Nasdaq 100 companies.

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In Asia, stock volatility continued with South Korean equities swinging between gains and losses as investors focused on the outlook for chipmaker earnings. One of that market’s biggest stars, SK Hynix, is looking to raise up to $29.4 billion in a US listing. Results are due later today from Micron Technology Inc., the single biggest contributor to the S&P 500’s 7.7% gain this year. Daily turnover in the stock has topped $70 billion ahead of the report.

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“You’re going to have these gut check moments,” said Dan Ives, senior equity analyst at Wedbush Securities, in a Bloomberg TV interview on Wednesday morning. “But we continue to view these as opportunities to own the AI winners.”

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Crude oil prices are slipping as more tankers cross the Strait of Hormuz, with West Texas Intermediate prices falling below $70 a barrel. 

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Traders also parsed disappointing new home-sales figures for the month of May and weaker-than-expected building permits, which may lead to a less hawkish Fed by signaling cooling in the economy.

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Despite the pullback, much of Wall Street remains bullish on the outlook for stocks this year. JPMorgan Chase & Co. strategists raised their view for the S&P 500 this year, now expecting the benchmark to end the year at 7,800 points, up from a previous target of 7,600. It’s around 7,360 now.

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Against a backdrop of earnings growth and peace talks between the US and Iran that are pulling down oil prices, “we are approaching our ‘Blue Sky’ scenario,” the banks strategists led by Dubravko Lakos-Bujas wrote in a note.

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This week’s declines are typical of short-term hiccups, said Jennifer Bender, global chief investment strategist at State Street Investment Management.

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“We expect these kinds of volatility episodes to continue,” Bender said. “The shifting geopolitical landscape means that political news is less predictable, the world order is increasingly competitive and power-based, and equity markets are more highly concentrated.”