Nasdaq Sinks 0.86% at Open as Chip Sell-Off Wipes $215 Billion; Dow Rises 0.55% on Rotation Trade

Mumbai, July 28: The US stock market opened with a stark divergence on Tuesday as a brutal global semiconductor sell-off hammered the tech-heavy Nasdaq Composite, while the Dow Jones Industrial Average advanced on the back of a powerful rotation into defensive and value-oriented sectors. The Nasdaq Composite shed 215.13 points, or 0.86%, to trade at 24,716.95, as investors fled AI-related hardware names amid growing scrutiny over massive infrastructure spending and mounting competition from Chinese chipmakers. 

The Dow Jones Industrial Average, conversely, rallied 285.84 points, or 0.55%, to 52,495.92, supported by robust earnings from blue-chip companies and falling crude oil prices that eased inflation concerns. The S&P 500 edged lower by 15.44 points, or 0.21%, to 7,397.74, caught in a fierce tug-of-war between technology sector losses and strength in consumer staples, healthcare, and industrials. 

Global Semiconductor Meltdown Drags Nasdaq Lower as AI Spending Worries Mount 

The Nasdaq Composite opened significantly lower on Tuesday, reflecting a wave of risk aversion that swept through global technology markets overnight. Asian semiconductor giants bore the brunt of the selling, with South Korea’s Kospi index plunging over 10% as investors dumped shares of memory chipmakers SK Hynix and Samsung Electronics, which tumbled more than 14% and 13% respectively. Japan’s Nikkei 225 also dropped 4%, compounding the negative sentiment that carried into US pre-market trading. 

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The sell-off in US chip stocks was broad-based and severe. Micron Technology fell 9.14% at the open, while Advanced Micro Devices shed 8.17% and Lam Research dropped 8.27%. Western Digital plunged 12.23% and Seagate Technology declined 11.32%, reflecting deep concerns about memory chip oversupply and weakening demand. Nvidia, the poster child of the AI boom, slipped 0.99% as investors questioned whether the massive capital expenditure by hyperscalers would translate into commensurate returns. 

The VanEck Semiconductor ETF shed approximately 3% in early trading, with the Philadelphia SE Semiconductor Index falling over 20% from its all-time high reached in June, signalling a potential shift in market sentiment toward the AI trade that had propelled markets higher for much of the past year. 

AI Circular Financing Concerns Intensify Amid Reports of Nvidia-OpenAI Deal 

Investor anxiety over the artificial intelligence sector intensified following reports that Nvidia is exploring a $250 billion funding backstop for OpenAI, further intertwining the two companies and heightening worries about circular financing structures. Market participants have grown increasingly sceptical of arrangements where chipmakers provide financing to AI developers who in turn purchase their hardware, creating a potentially unsustainable feedback loop. 

The Roundhill Memory Exchange Traded Fund lost 7.4% on Tuesday and has been trading below its 50-day moving average for the past two weeks, reflecting weak short-term momentum. Technology traders also expressed concern that Chinese competitors are narrowing the AI gap with American companies, undermining prospects for a timely payoff on the billions of dollars being invested in artificial intelligence infrastructure. 

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AI expenditure scrutiny is expected to intensify as Microsoft and Meta Platforms prepare to report earnings on Wednesday. Investors will be closely examining comments from management regarding capital expenditure plans and the timeline for monetising AI investments. Microsoft shares rose 2.37% at the open despite the broader tech weakness, while Meta gained 0.79%. 

Dow Jones Rallies on Rotation Trade as Investors Seek Defensive Havens 

The Dow Jones Industrial Average opened higher on Tuesday, advancing 285.84 points to 52,495.92, as investors continued a rotation out of high-flying technology names and into defensive and traditional value sectors. The divergence between the Dow and Nasdaq underscores a significant shift in market leadership, with investors seeking refuge in companies with stable earnings, strong balance sheets, and attractive dividend yields. 

The Consumer Defensive sector led the charge, with Coca-Cola jumping 5.93% following an earnings beat and raised full-year guidance. PepsiCo gained 3.58%, while Walmart advanced 2.70% and Procter & Gamble rose 3.09%. Healthcare stocks also performed strongly, with Johnson & Johnson climbing 3.08% on news of a talc litigation settlement, while Amgen surged 4.73% and Merck added 2.23%. 

Industrial stocks provided additional support, with Caterpillar rising 4.69%, Boeing gaining 1.86%, and Honeywell International advancing 1.90%. The rotation trade reflects growing investor preference for companies less exposed to the volatility of the technology sector and more insulated from the uncertainty surrounding AI spending and global trade tensions. 

Sherwin-Williams and Coca-Cola Beat Estimates, Hike Full-Year Outlook 

Corporate earnings provided a bright spot for the Dow, with Sherwin-Williams emerging as the benchmark’s top performer after reporting second-quarter results that comfortably exceeded Wall Street expectations. The paint manufacturer earned an adjusted $3.70 per share on revenue of $6.79 billion, surpassing analyst estimates of $3.52 per share on revenue of $6.6 billion. The company also raised its full-year earnings outlook, sending shares up more than 7%. 

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Coca-Cola posted adjusted earnings of 97 cents per share, beating estimated earnings per share of 93 cents, while revenue of $13.38 billion exceeded expectations of $13.16 billion. Global unit case volume rose 5%, above the previous quarter’s 3% gain and the 2.5% growth Wall Street expected. Coca-Cola Zero Sugar remained the driving force, with volume up 16% in the quarter, while Diet Coke and Coca-Cola Light rose 7% collectively. 

Chief Financial Officer John Murphy told Yahoo Finance that Diet Coke was “having a moment,” while the company’s full-year comparable earnings per share growth forecast was raised to 9% to 10% from the prior estimate of 8% to 9%. The beverage giant’s strong performance helped anchor the consumer staples sector, which benefited from the rotation out of technology stocks. 

Johnson & Johnson Settles Talc Lawsuits for $5.5 Billion 

Johnson & Johnson announced that it will pay $5.5 billion to settle approximately 76,000 lawsuits alleging that the company’s powder and talc products caused ovarian cancer. The settlement, which requires acceptance by at least 95% of the claims in state and federal court, represents a significant step toward resolving decades of litigation that has weighed heavily on the healthcare conglomerate’s stock. 

The company’s vice president of litigation stated that the “claims lack scientific merit” but preferred to settle the lawsuits “to put this matter behind” the company. Johnson & Johnson plans to pay $3 billion in 2027, with no additional payments before 2028. Attorney Chris Seeger, representing over 2,000 clients, suggested the company may need to pay $7 billion or more as the settlement does not cap the company’s payout. 

Shares of Johnson & Johnson rose more than 3% at the open, reflecting investor relief that the company has taken a significant step toward resolving the long-standing litigation. The settlement also boosted sentiment across the healthcare sector, which benefited from the broader rotation into defensive stocks. 

UPS Beats Estimates, Raises Full-Year Revenue Guidance 

United Parcel Service reported second-quarter revenue of $22.8 billion on Tuesday, surpassing Wall Street’s estimated $21.81 billion, while adjusted earnings per share of $1.76 came in ahead of the $1.66 per share expected by analysts. The delivery giant raised its full-year revenue guidance to $91.2 billion, with adjusted EPS of approximately $7.22. 

Chief Executive Officer Carol Tomé described the quarter as marking “an expected and significant shift in our performance,” adding that the company delivered both consolidated revenue and non-GAAP adjusted operating profit growth. UPS entered the second half of the year with strong momentum, raising its full-year consolidated revenue, adjusted operating profit, and adjusted diluted EPS guidance. 

The company’s performance reflected improving operational efficiency and resilient consumer spending despite elevated borrowing costs. UPS shares rose more than 2% at the open, providing additional support for the Dow Jones Industrial Average. 

Boeing Reports Wider-Than-Expected Loss on Air Force One Program 

Boeing reported a wider-than-expected loss for the second quarter, as the aircraft manufacturer’s long-delayed Air Force One program weighed heavily on results. The company took a $280 million loss on the program to deliver two 747s that will serve as the next-generation Air Force One aircraft to the US government, as it ramped up investment for that plane. 

Chief Executive Officer Kelly Ortberg acknowledged the challenges, stating in a note to staff that “while we’re making progress on our development programs, you’re never done until you’re done.” The company still expects the first delivery in 2028, though investors remain cautious about the timeline and cost overruns associated with the prestigious government contract. 

Despite the disappointing results, Boeing shares rose 1.86% at the open, as investors appeared to focus on the company’s long-term prospects and the broader rotation into industrial stocks. The aerospace giant continues to navigate a complex operating environment characterised by supply chain disruptions, labour challenges, and intense competition from European rival Airbus. 

Oil Prices Retreat as US-Iran Talks Boost Ceasefire Hopes 

Crude oil prices continued to fall on Tuesday, providing relief to inflation-weary markets as diplomatic efforts between the United States and Iran gained momentum. Brent crude futures fell 1.7% to $86.82 per barrel, while West Texas Intermediate crude shed 1.6% to $81.31, extending sharp losses from Monday’s session. 

President Donald Trump hailed “good talks” with Iran, suggesting a deal to end the conflict was possible. The diplomatic thaw raised hopes for the reopening of the Strait of Hormuz, a critical chokepoint for global oil shipments, easing supply concerns that had pushed prices higher earlier in the year. 

The drop in oil prices curbed near-term inflation anxieties and provided a net positive environment for manufacturing, transportation, and retail components within the Dow. However, tensions remained elevated, with reports of drone attacks in Saudi Arabia, Jordan, and Iraq underscoring the fragility of the ceasefire. 

Federal Reserve Policy Meeting Commences as Rate Hike Expectations Build 

The Federal Reserve kicked off its two-day policy meeting on Tuesday, with investors closely watching for signals on the path forward for monetary policy. Traders see a 35.8% chance of a rate hike this week, according to LSEG data, and expect borrowing costs to rise by at least 25 basis points by year-end. 

Fed funds futures were last pricing in a quarter-point hike in September, according to the CME FedWatch Tool, reflecting uncertainty about the central bank’s next move. ING regional head of research Padhraic Garvey maintained the bank’s call for no change, stating that “inflation expectations are tame enough for comfort” and that the structure of the curve does not shape up for a rate hiking cycle. 

Garvey noted that it would be “unusual for the Fed to start a rate hiking cycle with the 5yr rich to the curve,” adding that if the central bank does hike, “any hikes delivered will be subsequently reversed, and the funds rate ends up lower than it is today within a 12-month window.” The Fed’s policy statement on Wednesday will be scrutinised for clues about the timing and pace of any future adjustments. 

Barclays and Philips Earnings Highlight Global Corporate Challenges 

Barclays shares fell 4.8% in morning trade after the UK bank reported a 16% year-on-year jump in group-wide income to £8.3 billion in the second quarter, with pre-tax profits of £3.25 billion. The investment bank business saw income jump 20% to £3.96 billion, beating analyst forecasts of £3.7 billion, driven by global markets and investment banking fees. Despite the strong performance, investors appeared concerned about the broader economic outlook and the bank’s exposure to potential credit deterioration. 

Philips slumped 9.6% in early European trading after reporting weaker orders in the second quarter, with order intakes declining 1% due to the timing of certain large orders. Group sales grew 4.4% to 4.4 billion euros, while operating income of 609 million euros was bolstered by a 186 million euro tariff refund. Chief Executive Roy Jacobs acknowledged “some lumpiness and volatility” in order intakes, but expressed confidence that orders would pick up in the third quarter. 

Meta and BlackRock Announce $14 Billion Data Centre Venture 

Meta Platforms and BlackRock announced a joint venture to develop and operate a $14 billion data centre campus in El Paso, Texas, representing one of the largest infrastructure investments in the state’s history. BlackRock-managed funds will own 80% of the venture, while Meta will retain a 20% stake. 

About $12.5 billion of BlackRock’s investment will be financed through debt, reflecting the scale of the project and the significant capital requirements of the artificial intelligence boom. Meta will receive a $1 billion distribution to align the venture’s ownership structure, while maintaining a strategic stake in the critical infrastructure asset. 

The partnership underscores the growing importance of data centre capacity for technology companies investing heavily in artificial intelligence infrastructure. Meta shares rose 0.79% at the open, while BlackRock advanced 0.61%, reflecting investor optimism about the long-term potential of the venture. 

Buzzfeed Soars on Workforce Reduction Plan 

Buzzfeed soared 13.3% in premarket trading after the digital media company announced plans to downsize its workforce by 35% to boost profitability and trim expenses. The workforce reduction plan, the first major move made by parent company Byron Allen, will affect staffers and contractors across its international hubs. 

The company expects to save $29 million to $32 million on the job cuts, with the layoffs costing between $6.5 million and $8.5 million, primarily in the company’s third-quarter of 2026. Buzzfeed said it hopes to stimulate positive cash flow by streamlining its organisational structure and preserving cash, as the company navigates a challenging digital advertising environment. 

Market participants should monitor Federal Reserve policy signals due Wednesday for potential impact on interest rate expectations, while tracking mega-cap earnings from Microsoft, Meta, and Amazon for insights on AI spending sustainability. The semiconductor sell-off warrants close observation of memory chip inventory levels and hyperscaler capital expenditure guidance. Falling oil prices may ease inflationary pressures, supporting consumer spending and transportation sector performance in the near term. 

Source 

• https://www.nasdaq.com/ 

• spglobal.com/spdji/en/indices/equity/sp-500/ 

• https://www.dowjones.com/