Market Wrap US-Europe 28 July: Dow Rises 1.0 Percent as Semiconductors Sink

By The Edge Research Team

A global sell-off in semiconductors split Wall Street on Tuesday and handed the session to the market’s traditional corners. The Dow Jones Industrial Average led the majors with a gain of 1.03 percent to 52,747.53, while the S&P 500 added 0.22 percent to 7,429.19 and the Nasdaq Composite closed lower, easing 0.22 percent to 24,876.91 as chipmakers dragged. The Philadelphia Semiconductor Index fell 4.49 percent to 11,035.68, while the volatility gauge eased 1.82 percent to 18.33, per CNBC. Money moved into defensives, with the health care and financials sectors touching fresh all-time highs during the session as investors shifted away from the technology trade, our reading.

The chip rout was the day’s dominant force, and it arrived from Asia. Overnight, South Korea’s Kospi plunged 10.84 percent and triggered circuit breakers, with SK Hynix and Samsung Electronics both down double digits, while Taiwan’s Taiex fell 4.65 percent and Japan’s Nikkei dropped 3.95 percent, per CNBC. The selling carried into US and European chip names: the VanEck Semiconductor ETF fell more than 3 percent to put the group on course for its worst month in more than a decade, per CNBC, while Micron, Advanced Micro Devices and Intel all declined. Corning tumbled about 12 percent, dragging optical and artificial-intelligence-linked names lower, after its current-quarter revenue forecast disappointed despite an earnings beat, per CNBC. The Federal Reserve began its two-day meeting on Tuesday, with a rate decision due Wednesday, and Treasury yields edged lower, the 10-year easing about 4 basis points to 4.600 percent, per CNBC.

The rotation reshaped the leaderboard. The Health Care Select Sector fund and the Financial Select Sector fund each hit fresh intraday all-time highs, and Dow components led the tape after a run of earnings beats, per CNBC. The reshuffle extended to the market-cap crown: Apple sat atop the megacaps at about 4.99 trillion dollars, ahead of Nvidia at about 4.77 trillion, a lead of roughly 227 billion, our calculation from the closing caps, as the chip complex’s slide this month pared Nvidia’s value while Apple held firm. Alphabet was the standout among the giants, rising 2.19 percent to about 4.02 trillion dollars, our reading.

The earnings tape outside technology was mixed at the close. Coca-Cola rose about 5 percent and Sherwin-Williams about 8 percent after beating estimates and raising guidance, and Royal Caribbean gained about 6 percent after a beat and a raised outlook, per CNBC. Boeing rose about 5 percent even after reporting a wider-than-expected quarterly loss. Not every beat was rewarded: United Parcel Service fell about 7 percent despite lifting its full-year outlook, and Johnson & Johnson finished little changed after proposing a 5.5 billion dollar resolution of talc lawsuits. Visa, due to report after the close, was reported to be cutting about 7 percent of its workforce, per CNBC.

Europe closed mostly higher, carried by earnings rather than the chip tape. The pan-European Stoxx 600 rose 0.35 percent to 646.89, the FTSE 100 added 0.83 percent to 10,871.02, Germany’s DAX gained 0.41 percent to 25,464.01, France’s CAC 40 rose 0.63 percent to 8,458.78 and the Euro Stoxx 50 edged up 0.12 percent to 6,289.51, though Italy’s FTSE MIB fell 0.69 percent and Spain’s IBEX 35 slipped 0.07 percent, per CNBC. LVMH firmed after posting its first sales growth in fashion and leather goods in two years on firm US demand, lifting the luxury sector, while Man Group rose after its assets under management reached a record, per CNBC. On the downside, Barclays fell about 5 percent as rising costs overshadowed higher second-quarter income, and Philips slid about 5 percent on weaker orders, while Mercedes-Benz rose even as it cut its full-year guidance on subdued demand in China, per CNBC.

In currencies, commodities and crypto, the dollar was firm early, the US dollar index touching a one-month high near 101.64 before easing to about 101.40, little changed on the day, per CNBC. The euro firmed 0.18 percent to 1.1388, sterling was little changed at 1.3285 and the yen traded near 163.86 per dollar. The Egyptian pound firmed to 50.45 per dollar, holding below the 51 line, and the Kuwaiti dinar held near 0.3079. Bitcoin traded about 1.7 percent lower near 63,833 dollars, moving with the softer Nasdaq, per CNBC. In commodities, Brent crude settled 5.06 percent lower at 83.89 dollars a barrel and gold settled at 4,028.60 dollars an ounce, moves covered in our commodities wrap as the US-Iran pause held.

Further east, Tuesday’s closes from our MENA-Asia wrap remain the reference: the chip rout drove the region’s declines, with South Korea’s Kospi down 10.84 percent, Taiwan’s Taiex down 4.65 percent and Japan’s Nikkei down 3.95 percent, while Oman’s MSX 30 led the Gulf with a 0.86 percent gain, Egypt’s EGX30 edged up 0.18 percent and Saudi Arabia’s TASI and Dubai’s DFM General closed lower.

Why it matters: The session marked a clear rotation, with a global semiconductor sell-off pushing investors out of the technology trade and into health care, financials and the industrial-heavy Dow, our reading. For the Gulf, the same de-escalation that pulled the security premium out of oil, covered in our commodities wrap, weighed on near-term hydrocarbon receipts for producers such as Saudi Arabia, Kuwait, the UAE and Qatar, while the firmer risk tone in defensive equities offered a steadier backdrop for regional investors; a single session does not alter fiscal outlooks. For energy importers such as Egypt and Jordan, softer crude and a firmer Egyptian pound below the 51 line ease the external bill at the margin.

Outlook: The Federal Reserve’s decision on Wednesday now carries the tape, with a heavy week of megacap earnings still to come and the question of whether the chip sell-off has further to run, our reading. Markets will watch whether the rotation into defensives holds, whether Nvidia can arrest the slide that handed the crown back to Apple, and whether the Egyptian pound keeps the 51 line as oil steadies after its retreat, per CNBC.

Table – US and Europe, 28 July closes, ranked by change:

Table – MENA and Asia equities, Tuesday 28 July closes, for reference, ranked by change:

Table – Commodities, rates, volatility, FX and crypto, intraday 28 July:

Price basis: US levels are the official close on 28 July, about 20:00 UTC, and European closes were pulled at the European close, all via CNBC; Brent and gold settlements and the wider commodities move are covered in our commodities wrap, per CNBC; the MENA and Asia table repeats our published Tuesday wrap.

Sources: CNBC; Reuters.

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