Tech sector sell-off drags down Wall Street stocks

Wall Street stocks fell on Friday, as signs of weak demand from the world’s top chipmaker hit Big Tech shares.

The benchmark S&P 500 dropped 1.2 per cent on the day, while the tech-dominated Nasdaq Composite fell 1.6 per cent. For the week, the indices shed 0.2 per cent and 0.3 per cent, respectively.

Technology stocks led the market lower on Friday after a report that Taiwan’s TSMC had asked its major suppliers to delay the delivery of high-end chipmaking equipment.

The Philadelphia Semiconductor index, tracking 30 of the world’s biggest semiconductor manufacturers, fell 3 per cent.

Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments, said the TSMC news had spooked investors as it provided a reminder that the economic outlook was still uncertain despite recent optimism.

“The market has priced in a soft landing,” VanCronkhite said. “We’ve had good economic data, dropping inflation, and that’s given confidence that the [Federal Reserve] will stick the landing . . . [but] there are several micro-data points that suggest the all-clear flag cannot be waved quite yet.”

VanCronkhite said the beginning of a strike among US autoworkers and several cautious updates from industrial groups at recent shareholder conferences had also damped optimism among some investors.

Chip designer Arm was among the semiconductor groups affected by the negative mood, sliding 4.5 per cent on its second day of trading after it completed the largest initial public offering on Wall Street in nearly two years.

Shares in the SoftBank-backed company remained well above its offer price, however, having risen 25 per cent on its first day of trading.

Meanwhile, Europe’s region-wide Stoxx 600 index advanced 0.3 per cent, giving up part of its earlier gains, which came as investors cheered signs that eurozone interest rates may have peaked.

The CAC 40 in Paris rose 1 per cent, the Dax in Frankfurt added 0.6 per cent and the FTSE 100 in London gained 0.5 per cent.

The European Central Bank on Thursday increased rates by a quarter of a percentage point to a record high of 4 per cent, but signalled that the current level could suffice in bringing inflation back to target.

Investor sentiment was also bolstered by official data from China showing retail sales and industrial production in the country rose more than analysts had expected in August.

Consumer cyclical and basic materials stocks led gains in Europe as these sectors are particularly sensitive to expectations of Chinese consumer spending. The Stoxx Europe luxury index advanced 1.6 per cent, with the Paris-listed retail giant LVMH up 2.5 per cent.

In Asia, Hong Kong’s Hang Seng rose 0.8 per cent and Tokyo’s Topix gained 1 per cent. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks briefly rallied following the data release before falling back to end the day down 0.7 per cent.

China’s economy has struggled to rebound after disruptive zero-Covid measures were lifted late last year, and investors are on high alert for signs that recent stimulus measures may be gaining traction.

Stephen Innes, managing partner at SPI Asset Management, said: “There’s a growing sense of optimism among a cohort of investors who believe that Beijing’s recent initiatives to stimulate the economy and stabilise financial markets are showing signs of success.”

However, Innes added that “a single month of positive data isn’t sufficient to confirm a sustained path to recovery”.

The data came after the People’s Bank of China cut banks’ reserve requirement ratio by 0.25 percentage points to 7.4 per cent, freeing up an estimated Rmb500bn ($70bn) in liquidity for lenders.

Analysts at Goldman Sachs wrote in a note that the cut would help compensate for a recent surge in local government bond issuance in recent weeks, which has drained liquidity from the banking system and pushed up the cost of interbank lending.

“Injecting liquidity through the reserve requirement ratio cut would help suppress interbank interest rates amid high liquidity demand, and ensure low funding cost for banks,” the analysts wrote.