Stock Indexes Split as Chip Stocks Fall, Oil Surges

Remember when spending billions on chip fabs and AI data centers was the hottest thing in tech? That was last week. By Monday morning, investors had moved on to companies that make money without building small cities full of servers.

The tech-heavy Nasdaq Composite (NASDAQINDEX: ^IXIC) index fell 0.7% by 11:16 a.m. ET, while the broader S&P 500 (SNPINDEX: ^GSPC) and Dow Jones Industrial Average (DJINDICES: ^DJI) held their losses to 0.3% and 0.2%, respectively.

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^DJI data by YCharts

Two themes dominated this morning’s headlines. Chip stocks extended losses following a historic collapse in Korean markets, while President Trump proposed charging a 20% toll on ships passing through the Strait of Hormuz.

Circuit breakers in Seoul and renewed Hormuz blockage

The semiconductor sell-off began overnight in Seoul, where SK Hynix plunged 15% in its worst day on record. The broader KOSPI index fell 5.5%, triggering circuit breakers for the 35th time this year. That’s more than the 26 times Korean markets halted trading during the entire 2008 financial crisis.

U.S.-listed shares of SK Hynix (NASDAQ: SKHY) fell 8.4%, dropping below Friday’s $149 IPO price. American memory chip rival Micron Technology (NASDAQ: MU) fell 4.3%, connecting the Korean crash to U.S. indexes. Most semiconductor stocks are down and only a handful of software names are trending up. As a result, 17 of the 20 largest Nasdaq Composite moves are printed in red ink right now.

Apple (NASDAQ: AAPL) gained 0.9%, one of the few mega-caps providing bullish support, but its $44 billion in additional market cap couldn’t offset larger cap losses from Micron, Nvidia, and Space Exploration Technologies.

In the Iranian conflict, the ceasefire has collapsed and negotiations have stalled. Both sides are claiming full control of the Strait of Hormuz, shipping traffic through this critical area is essentially zero, and oil prices are up more than 3% today. Energy stocks are up, data center construction plays are fizzling today, and the Dow is quite balanced. I see 15 upticks and 15 downticks among its 30 hand-picked components.

Earnings season arrives at an awkward moment

The semiconductor sell-off leads up to the start of third-quarter earnings season. Major banks including JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), and Goldman Sachs will report their second-quarter results this week. Netflix (NASDAQ: NFLX), Johnson & Johnson (NYSE: JNJ), and UnitedHealth Group (NYSE: UNH) are also prepping their financial statements. Tech giants will follow over the next couple of weeks.

The timing is either perfect or terrible, depending on your perspective. If chip companies report strong results and optimistic guidance, the ongoing downturn could reverse quickly. If they disappoint or sound cautious about future spending, things will get uglier.

For now, investors seem content to wait for actual data. This volatile moment doesn’t look like a good time to bet on billion-dollar data center spending that hasn’t proven its economic value yet.

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Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Anders Bylund has positions in Micron Technology, Netflix, Nvidia, and UnitedHealth Group. The Motley Fool has positions in and recommends Apple, JPMorgan Chase, Micron Technology, Netflix, and Nvidia. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group. The Motley Fool has a disclosure policy.

Stock Indexes Split as Chip Stocks Fall, Oil Surges was originally published by The Motley Fool