Nasdaq 100 falls 1.9% as chipmakers lead broad tech selloff

The Dow Jones Industrial Average climbed to a fresh all-time high Tuesday even as the Nasdaq 100 slumped 1.89%, dragged lower by a rout in semiconductor stocks and a slide in energy producers as crude oil prices plunged to a 3.5-month low.

The S&P 500 fell 0.57%, while the Dow added 0.64% to notch a record close. The divergence between the Dow and the tech-heavy Nasdaq was the widest in weeks, reflecting a rotation out of growth names and into value-oriented sectors as the Federal Reserve's two-day policy meeting got under way.

"The market is pricing in a less hawkish Fed given the sharp drop in oil prices, but tech is getting hit by a separate set of concerns around chip demand and positioning ahead of Micron's earnings," said Sarah Lin, equity market analyst at Edgen. "The Dow's strength tells you this is a rotation, not a broad risk-off move."

Chipmakers bore the brunt of the selling. Marvell Technology tumbled more than 9%, the biggest decliner in the Nasdaq 100, while Intel dropped more than 8% and Advanced Micro Devices and KLA Corp each fell more than 7%. Micron Technology slid more than 6% ahead of its quarterly report due Wednesday after the close. Lam Research lost more than 5%, and ASML Holding, Broadcom, and NXP Semiconductors each declined more than 4%. Software and cybersecurity stocks also weakened, with Atlassian Corp down more than 3% and Zscaler falling more than 2%.

The selloff in tech coincided with a sharp decline in crude oil, which amplified the rotation. WTI crude sank more than 5% to a 3.5-month low after the US and Iran agreed to reopen the Strait of Hormuz, boosting expectations for a revival in oil supplies. Goldman Sachs cut its Brent forecast to $80 a barrel for the fourth quarter, down from $90, and said Persian Gulf crude exports could return to pre-war levels by the end of July — one month earlier than previously expected. Energy stocks followed crude lower, with Halliburton down more than 2% and ConocoPhillips, Devon Energy, and Occidental Petroleum each falling more than 1%.

The 10-year Treasury yield fell 5.1 basis points to 4.422%, its lowest in two weeks, as lower oil prices eased inflation expectations. Tuesday's weaker-than-expected housing data added to the bid for bonds: May housing starts plunged 15.4% month over month to a six-year low of 1.177 million, well below the 1.430 million consensus, while building permits slipped 0.7% to 1.413 million.

The FOMC began its two-day meeting Tuesday — the first under new Chair Kevin Warsh — with markets pricing just a 5% chance of a quarter-point rate hike. The focus will be on how Warsh navigates the post-meeting press conference and the committee's updated inflation outlook.

On the upside, Take-Two Interactive Software jumped more than 6% after Piper Sandler estimated the company would sell 46 million units of Grand Theft Auto VI at launch. SpaceX added more than 4%, extending a 37% rally over the prior two sessions following its record $75 billion IPO. Edwards Lifesciences rose more than 2% after the US government published a coverage proposal for transcatheter aortic valve replacement.

The VIX, Wall Street's fear gauge, remained elevated but below its recent peak as traders awaited the Fed's decision and Thursday's May personal consumption expenditures price index — the central bank's preferred inflation measure.

This article is for informational purposes only and does not constitute investment advice.