'A rotation is taking place': Chip stocks tumble as Dow Jones rises
Investors fear tighter oversight of AI infrastructure after Democrats won control of Congress
Chip stocks were among the hardest hit by the U.S. midterm election results / Photo: Shutterstock.com
Chip stocks have resumed selling off following the U.S. midterm elections. The Philadelphia Semiconductor Index plunged nearly 5% in early trading on Thursday.
Nvidia shares slid 4%. Intel tumbled more than 6%, Micron and Marvell Technology nearly 8%, and Sandisk more than 11%. The Nasdaq Composite was off 1.3%. Chip stocks were among the hardest hit by the U.S. midterm election results amid concerns that the Democratic victory would lead to tighter regulation of data centers and hurt semiconductor demand.
Investors are shifting money out of tech and into previously out-of-favor stocks and economically sensitive companies, Bloomberg reported. The blue-chip Dow Jones Industrial Average rose 0.4% in the opening minutes of trading after gaining 3% the previous day. The S&P 500 is down 0.5% after rising 1.6% the day before.
What analysts are saying
“A rotation is taking place, with some segments of tech taking a pause while the rally is broadening on the assumption of slower AI capex, higher chances of a resolution with Iran and lower energy prices,” said Nadege Dufosse, head of multi-asset at Candriam, as quoted by Bloomberg.
Markets will likely go back to trading on macro fundamentals once the election-driven rotation has run its course, said Wolf von Rotberg at Bank J. Safra Sarasin. “If AI capex growth is actually threatened, equities will struggle to perform into the end of the year,” he said.
Markets are positioned “for a classic Santa rally lasting into December as people try to buy the dip in the AI trade,” in the view of Joachim Klement at Panmure Liberum. “We would use strength into year-end to sell since we think the AI trade will run out of steam in 2027.”
U.S. economic data released Thursday showed weekly initial jobless claims that came in below all forecasts, while third-quarter labor productivity grew faster than expected. Traders await Friday’s October nonfarm payroll print to assess the outlook for the economy and interest rates. Money markets are pricing in roughly an 80% probability of a 25-basis-point Fed rate hike next month and the possibility of another increase in 2027.
