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Just moments ago, a piece of bad news hit the market.

AInvestWednesday, Jul 17, 2024 6:10 am ET
1min read

Just now, the Nasdaq futures are down sharply! What's going on?

With the expectation of a September rate cut at its peak, the Nasdaq index was wobbling. In recent days, market money has started to shift from the tech giants to the small and mid-cap companies that would directly benefit from a rate cut. Over the past four trading days, the Russell 2000 index, which represents small-cap stocks, has outperformed the Nasdaq 100 index by 11 per cent.

And just now, a negative news came out of the semiconductor industry, pushing the Nasdaq index lower, with the futures down more than 1 per cent.

ASML, the Dutch leader in chip-making equipment, reported its earnings after the market closed, showing that while the order backlog for the quarter was 5.57bn euros, higher than the consensus estimate of 4.41bn euros, it was lower than the most optimistic estimate of 6bn-8bn euros; the company also expects third-quarter sales of 7bn euros, lower than the market consensus of 7.46bn euros; and it expects third-quarter gross margin of 50.5 per cent, lower than the market consensus of 51.1 per cent.

After the news, global chip stocks fell sharply. In the pre-market trading, ASML fell about 6 per cent, TSMC fell 3.62 per cent, Nvidia and AMD fell more than 3 per cent.

It is noteworthy that the leadership of the US stock market has changed in recent days, with investors shifting from the tech giants that dominated the market in the first half of the year to stocks that had previously lagged, such as industrial stocks and small-cap stocks.

The shift in investors' attention to stocks that had previously lagged reflects the growing confidence in a rate cut, as inflation is expected to cool down and the Fed is likely to start cutting rates in September. According to FedWatch by CME Group, the implied probability of a rate cut in September is almost 100 per cent, up from about 73 per cent a week ago.

Analysts point out that small-cap stocks are usually more sensitive to interest rate changes, especially in terms of debt financing, such as bank loans and floating-rate debt. This market segmentation has led to the decline of large-cap stocks and the rise of small-cap stocks, so some people think it might be better to buy small-cap stocks than large-cap stocks at the moment.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.