(Bloomberg) — Stocks retreated from their all-time highs, with concern about tighter US restrictions on chip sales to China spurring a selloff in the industry that has powered the bull market.
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From the US to Europe and Asia, chipmakers came under heavy pressure. American powerhouses Nvidia Corp., Advanced Micro Devices Inc. and Broadcom Inc. drove a closely watched semiconductor gauge down 6%. Across the Atlantic, ASML Holding NV tumbled over 10% even after the Dutch giant reported strong orders. Those moves followed a plunge in Tokyo Electron Ltd., which led a slide in Japan’s Nikkei 225 Stock Average.
Wednesday’s action reprised a recent trend in which capitalization-weighted indexes performed far worse than the average stock, a consequence of weakness in the megacaps that dominate them. With firms such as Apple Inc. and Microsoft Corp. each making up 7% of the S&P 500, losses are hard to offset even when most of the index’s constituents are up — as they are today.
The Biden administration told allies it’s considering severe curbs if companies like Tokyo Electron and ASML keep giving China access to advanced semiconductor technology. The US is also weighing more sanctions on specific Chinese chip firms linked to Huawei Technologies Co.
“This news on the chip front is the kind of UFO (UnForeseen Occurrence) that could indeed create the kind of selling that could be the catalyst for a tradable correction in the stock market,” said Matt Maley at Miller Tabak + Co. “Broad indices have become very overbought.”
The S&P 500 fell over 1%, while the Nasdaq 100 sank 2.5%. A gauge of the “Magnificent Seven” giant companies slipped 3.5%. The Russell 2000 of small firms dropped 0.6%. Wall Street’s “fear gauge” — the VIX — spiked toward the highest since early May.
Among the few chipmakers defying the selloff were Intel Corp. and Globalfoundries Inc. And the Dow Jones Industrial Average climbed for a sixth straight day — set for another record. Financial shares outperformed, with U.S. Bancorp surging on solid…
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