Chips, Nadaq down; Equal-weighted S&P outpaces tech-heavy market cap-weighted index
QQQ, the Nasdaq-100 fund, fell 1.3% on Thursday, October 8, while RSP, the equal-weight S&P 500 fund, rose 0.6%.
Key takeaways
The chips were down on Thursday, October 8th, dragging the Nasdaq 100 down with them for the day. Tech woes also affected ETF: SPY, pulling it down 1.3% for the day. However, an equal-weighted S&P 500 fund, ETF:RSP, rose 0.6.
These two ETFs hold the same stocks. But the standard S&P 500 Index is weighted by market cap. In a nutshell, that means just ten out of the 500 stocks in SPY's portfolio make up about 39% of the fund's assets. ETF:RSP, in contrast, is an equal-weighted index. The fund's managers regularly rebalance the portfolio to ensure that each stock represents about 1/500th of the fund.
Of the 11 industy-specfic funds that comprise the S&P 500, eight of them were up for the day. The market downturn was concentrated in a handful of chipmaking and technology giants that hold an outsized position in both the market cap-weighted EFT:SPY and ETF: QQQ.
Eight of 11 industry funds rose as technology fell
QQQ fell 1.3%. Just four stocks — Nvidia (-2.9%), Micron (-4.8%), Intel (-5.3%) and AMD (-3.9%) accounted for most of the ETF's decline.
Broadcom, another chipmaker in the fund, fell 4.3%.
Apple, the second-largest holding, bucked the trend to rise 1.1%. However, while Apple does design and manufacture chips for its own products, it's business is not entirely tied to chipmaking like Intel's and AMD's.
Nvidia cut the fund by more than any other holding
According to reporting from the Financial Times, OpenAI told investors its annualized revenue was roughly $50 billion at the end of September. Annualized revenue is a full-year pace based on recent sales. A $68 billion figure had been widely reported late last month.
A person familiar with the matter said the higher figure counted sales through OpenAI's partners, a method analysts use to compare the company with Anthropic, which includes those sales in its reporting. OpenAI's own accounting does not. So the announcement of the lower figure did not indicate a true drop in sales.
Oracle fell 5.6% the same day. Oracle is a cloud company building data centers with OpenAI, not a chipmaker. The Wall Street Journal reported that Oracle is in talks to have outside investors buy AI chips and lease them to the company.
West Texas Intermediate Crude traded as high as $93.2 a barrel, and XLE, the fund that tracks energy companies in the S&P 500, rose 2.9% on the day.
Meanwhile, Oil producers shut down 62.9% of Gulf of Mexico oil output by Thursday ahead of Hurricane Isaias, the Marine Minerals Administration said, putting upward pressure on oil prices. However, crude oil came off that high after President Donald Trump said the United States would not attack Iran before the November 3 midterm elections.
Fed Governor Christopher Waller said in Istanbul that if the data keep coming in as he expects, more rate increases are likely as the Fed seeks to roll inflation back to under its long-term target of 2%.
The Fed's target interest rate range is 3.75% to 4%, after an increase in September.
"The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time," Waller said.
That leaves the timing of the next increase open, including this month.
Yields rose after his remarks, then receded after Trump's comment and a sale of 30-year bonds. The Treasury sold $22 billion of the bonds at a yield of 5.618%, with buyers offering $2.54 for every $1 on sale. TLT, the fund that holds U.S. Treasury bonds maturing in more than 20 years, rose 0.9%.
ETFs in this story
Frequently asked questions
Why did the equal-weight fund rise when the S&P 500 fund fell?
The two funds hold the same companies, and the gap is what you get when a few giant chip stocks fall and an equal-weight fund does not have to follow them.
Which chip stocks drove the Nasdaq-100 drop?
Nvidia, Micron, Intel and AMD together accounted for most of the drop, and Nvidia's decline cut the fund by more than any other stock.
Was OpenAI's lower revenue figure a drop in sales?
The lower figure was not a drop in sales; OpenAI's own count does not include partner sales that the higher figure counted.
What happened to energy stocks?
Oil traded as high as $93.2 a barrel, the energy fund rose 2.9%, and producers had shut in 62.9% of Gulf of Mexico output ahead of Hurricane Isaias.
