Investing.com-- U.S. stock index futures slumped Wednesday, with heavyweight technology stocks seeing a sustained pullback on raised geopolitical tensions.
At 06:25 ET (10:25 GMT), Dow Jones Futures fell 60 points, or 0.2%, S&P 500 Futures dropped 40 points, or 0.7%, and Nasdaq 100 Futures slumped 250 points, or 1.2%.
The major Wall Street indices closed higher Tuesday, with the Dow Jones Industrial Average surging 1.9% to a record closing high. The S&P 500 rose 0.6%, also to a record high, while the tech-heavy NASDAQ Composite rose just 0.2%.
Strong earnings, increased optimism over the U.S. economy and bets on lower interest rates saw traders pivot out of heavyweight tech stocks and into more economically sensitive sectors.
Tech sector weighed by geopolitics
However, the tone has since turned negative, with the tech sector leading the losses following a report from Bloomberg that the Biden administration is considering clamping down on companies exporting their critical chipmaking equipment to China.
Additionally, Republican presidential candidate Donald Trump raised geopolitical tensions by stating that Taiwan should pay the U.S. for supplying defense equipment as it does not give the country anything, causing Taiwan Semiconductor Manufacturing (NYSE:TSM), Taiwan’s biggest stock and the largest contract chipmaker in the world, to fall heavily premarket.
Trump made the comments in an interview with Bloomberg Businessweek that was published late Tuesday.
Dutch lithography equipment maker ASML (NASDAQ:ASML) stock also slumped in European trading despite a strong second quarter, with around half of its sales from China, highlighting the hefty downside in the event of tighter restrictions.
Hype over AI was a key driver of Wall Street’s rally over the past year, with technology stocks such as NVIDIA (NASDAQ:NVDA) leading a major spike in valuation. Loss of confidence in these stocks could result in a substantial revision in stock valuations.
Earnings season to continue
The earnings season is set to continue on Wednesday, with majors such as Johnson&Johnson (NYSE:JNJ), U.S. Bancorp (NYSE:USB), United Airlines (NASDAQ:UAL), Equifax (NYSE:EFX) and Prologis (NYSE:PLD) set to report.
Optimism over interest rate cuts also boosted U.S. stocks, as soft inflation readings and dovish-leaning comments from the Federal Reserve ratcheted up bets that the central bank will begin cutting rates from September.
Traders are pricing in a 91.7% chance the Fed will cut rates by 25 basis points in September, and a small chance for a 50 basis point cut, according to CME Fedwatch.
Stronger-than-expected retail sales, released Tuesday, did little to deter bets on interest rate cuts.
On the economic front, the Fed’s Beige Book will also be released, as will housing starts and building permits data for June.
Crude steadies after US inventories draw
Crude prices steadied Wednesday, as signs of tighter U.S. supplies helped soothe some fears over weakening demand in the rest of the globe, and China in particular.
By 06:25 ET, the U.S. crude futures (WTI) climbed 0.1% to $79.76 a barrel, while the Brent contract fell 0.1% to $83.67 a barrel.
{{8849|U.S. crcrude oil inventories fell by 4.4 million barrels last week, according to data from the American Petroleum Institute, considerably more than expected, pointing to a tight market in the world's largest oil producer and consumer.
The U.S. Energy Information Administration will release its official storage report later in the session.
Crude markets suffered a sharp tumble over the past week as weak economic data from top oil importer China ramped up concerns over slowing demand.
(Ambar Warrick contributed to this article.)
This content was originally published on Investing.com
