Markets started the week on a negative momentum. South Korea’s KOSPI correction scared investors away from chip stocks. On Wednesday, the FOMC announced that it would hold interest rates. That caused selling pressure to accelerate toward the close. Nasdaq (QQQ) rallied at first, only to sell off steadily in the last hour.
Fed Chair Kevin Warsh did not convince markets that the Fed would do something meaningful in its monetary policy to lower inflation rates. At over 3%, inflation has too many external factors that will lift product prices. The war in Iran, tariffs, and the AI boom increasing capital expenditures are all raising demand.
Bond markets reacted harshly. The 30Y Treasury bill yield rose to over 5.2%, a new high for this year. Chip stocks, which price in forward expectations for the economy, fell. NVIDIA (NVDA), Broadcom (AVGO), and Lam Research (LRCX) were among the losing stocks.
AMD (AMD) lost 5.51% on Wednesday, while Intel (INTC) dropped by 5.12%. Micron Technology (MU) fared the worst, dropping by 9.94%. Markets continue to price in China’s rise in AI chatbots and domestic memory production. Eventually, as early as later this year, memory chip output will increase. Samsung (SSNLF) and SK Hynix (SKHY) are also building plants to increase their capacity.
Deflation in the tech sector is still years away. Near-term inflation for food, gas, and consumer goods might set up a rate hike this year. That would hurt stock market prices.
