Chip stocks stay lower into the open as inflation revives rate-hike bets
Taiwan Semiconductor beat its forecast, but the selling continued, and producer prices at 8:30 a.m. ET are the next inflation reading before the Federal Reserve's Oct. 27-28 meeting.
Key takeaways
U.S. chip stocks were still lower before the open Thursday. Reuters reported that persistent inflation concerns had fueled expectations of further Federal Reserve (Fed) rate increases and hammered stocks linked to artificial intelligence.
The Philadelphia Semiconductor Index, the main gauge of U.S. chip stocks, fell 4.3% on Wednesday. Samsung Electronics then fell 9.5% in Seoul, and SK hynix fell 11.1%, Reuters said.
The Bureau of Labor Statistics said Wednesday that consumer prices rose 0.6% in September, after 0.4% in August, and were up 3.7% from a year earlier, compared with 3.4% in August. Gasoline rose 9.1% and accounted for more than half of the monthly increase. Prices excluding food and energy rose 0.3% on the month, the same as in August, and 2.6% on the year, after 2.4%. A Reuters poll had put that yearly core rate at 2.5%.
In premarket trading as of 7:04 a.m. ET, ahead of the 9:30 a.m. open, the VanEck Semiconductor ETF SMH was down 2.7% from Wednesday's close, after a 4.0% drop in Wednesday's session.
Invesco QQQ Trust, Series 1 QQQ was down 1.3%, after falling 2.0% on Wednesday. State Street SPDR S&P 500 ETF SPY was down 0.3%, and State Street SPDR Dow Jones Industrial Average ETF Trust DIA was up 0.3%.
Technology fell on Wednesday while the Dow fund held and health care rose. State Street Technology Select Sector SPDR ETF XLK fell 3.0%. DIA slipped 0.1%. State Street Health Care Select Sector SPDR ETF XLV rose 2.5%.
Technology fell 3.0% as health care led the session
Seoul followed Wednesday's U.S. chip selloff. South Korea's Kospi closed down 7.6% at 5,554.22 after a 20-minute trading halt. Reuters said that was the lowest close since April 7, a seventh straight loss and the longest losing streak since September 2024.
The index fell as much as 9.3% during the session. Ten of its 16 halts have come this year, Reuters said.
"The market is struggling to find a new buyer" after buyback programs at Samsung Electronics and SK hynix have run their course, Mixo Das, head of Korea equity strategy at J.P. Morgan in Hong Kong, told Reuters.
Japan's Nikkei 225 fell 4.9%. The Japan Times reported that Tokyo was joining a tech-stock rout that began in the United States overnight.
The iShares MSCI South Korea ETF EWY was down 6.4% in that premarket trading, after falling 4.0% on Wednesday.
A forecast beat did not lift the shares
Taiwan Semiconductor Manufacturing (TSMC) reported third-quarter revenue of $46.72 billion, up 41.2% from a year earlier and above the $44.6 billion to $45.8 billion it had forecast. Gross margin was 66.4%, inside a guided range of 65% to 67%. Operating margin was 58.7%, above a guided range of 56% to 58%.
For the fourth quarter, TSMC forecast revenue of $52.3 billion to $54.3 billion. The bottom of that range is still above the quarter it just reported. It guided gross margin at 65% to 67% again.
Its U.S.-listed shares had already fallen 3.4% on Wednesday, to $430, before these results. As of 7:04 a.m. ET, the bid-ask midpoint was $419.75, down 2.4% from that close.
"The market is reacting sensitively to whether capital raising will be sustainable and whether massive infrastructure investment will lead to real income, rather than revenue growth itself in AI services," Seo Sang-young, an analyst at Mirae Asset Securities, told Reuters.
Producer prices are the next test
September producer prices are due at 8:30 a.m. ET. CME Group's consensus is a 0.5% rise on the month and 5.4% on the year, the same yearly pace as August. CME Group said the monthly gain is expected to be lifted by energy costs.
Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said Wednesday that if the producer-price report also surprises to the upside, it could tip the balance toward a rate increase at the Fed's Oct. 27-28 meeting. The index includes prices for financial services and hospital services that are not in the consumer-price index but are in the Fed's preferred measure, the personal consumption expenditures price index.
Brent crude was at $104.50 as of 7:05 a.m. ET, down 1.5% from the prior settle, and still above $100. Gasoline's 9.1% rise in September accounted for more than half of the consumer-price increase.
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Frequently asked questions
Why are chip stocks falling?
Reuters said persistent inflation worries had raised expectations of more Fed rate increases and hammered stocks linked to artificial intelligence.
How did TSMC's third quarter compare with its forecast?
Revenue was $46.72 billion, above the $44.6 billion to $45.8 billion TSMC had forecast, but its U.S.-listed shares were still down 2.4% premarket.
What is the next inflation report?
September producer prices come out at 8:30 a.m. ET, and CME Group's consensus is a 0.5% rise on the month and 5.4% on the year.
Why does the producer-price report matter for the Fed?
Fifth Third's Bill Adams said another upside surprise could tip the balance toward a rate increase at the Fed's Oct. 27-28 meeting.
