The U.S. equity market experienced a significant sell-off on Wednesday, with the Nasdaq plummeting 2.8% and the S&P 500 falling 1.4%. The semiconductor sector led the decline, dropping by 10%, driven by several factors.
Citi analysts attributed the sector’s slump to ASML’s disappointing Q3 guidance, former President Trump’s comments that Taiwan should pay the U.S. for protection, and Bloomberg’s report on potential severe trade restrictions by the Biden administration targeting companies like Tokyo Electron and ASML.
“The US government is likely considering this action as China sales from foreign peers outgrew US equipment makers last year,” Citi analysts noted. The sustainability of China’s equipment spending, which accounts for about 35% of wafer fabrication equipment this year, remains a significant concern for the semiconductor sector.
Despite the broader market downturn, the small-cap Russell 2000 ended its longest winning streak in over four years, driven by renewed interest in undervalued stocks. The CBOE Market Volatility Index hit its highest level in six weeks, reflecting investor anxiety.
Smaller company shares have lagged behind tech giants throughout 2024. However, a softer-than-expected inflation report last week raised expectations of Federal Reserve rate cuts, potentially benefiting smaller companies.
