Fundamental Analysis

Equities End Mixed as Treasury Yields Soar, Chipmakers Stumble

  • The Biden administration announced it would halt shipments of advanced AI chips to China.
  • US Treasury yields increased following strong economic data.
  • US retail sales exceeded expectations in September.

US equities ended mixed on Tuesday, with the Nasdaq closing lower, while the Dow and S&P 500 remained nearly unchanged. These moves were due to rising Treasury yields and a drop in the shares of chipmakers after the Biden administration announced it would halt shipments of advanced artificial intelligence chips to China.

The Philadelphia SE Semiconductor index declined by 0.8%, and Nvidia’s shares fell by 4.7%. However, the chipmaker stated that it didn’t expect significant immediate financial impacts from the restrictions. 

Meanwhile, US Treasury yields increased as strong economic data made government bonds more attractive to investors and reduced the appeal of stocks.

However, positive earnings reports from companies, including Bank of America, which saw its stock rise by 2.3% after reporting quarterly results, helped mitigate the declines. Peter Cardillo, chief market economist at Spartan Capital Securities in New York, noted, “We had some pretty good earnings from most of the major companies reporting. However, the indices are running up against higher yields.”

US retail sales (Source: US Commerce Department)

US retail sales (Source: US Commerce Department)

Earlier data showed that US retail sales exceeded expectations in September, with increased purchases of motor vehicles and higher spending at restaurants and bars. Additionally, US factory production exceeded expectations in September.

Anthony Saglimbene from Ameriprise Financial commented, “Good news could be bad news for equities because it implies that the Federal Reserve will maintain higher interest rates for a longer time, possibly delaying expectations for rate cuts in 2024.”

Investors were also closely monitoring developments in the Middle East, with news of a significant explosion at a Gaza hospital resulting in casualties. Geopolitical tensions have captured the market’s focus. Moreover, investors were concentrating on policymakers’ statements to discern possible interest rate moves by the US Federal Reserve and the European Central Bank.

In Europe, stocks declined slightly on Tuesday due to disappointing earnings and higher government bond yields, although energy shares saw gains. The European Commission also conducted unannounced antitrust inspections in the construction chemicals sector in several member states amid suspicion of anti-competitive behavior. 

Meanwhile, the UK’s FTSE 100 rose by 0.6% after data revealed a slowdown in Britain’s regular wage growth, supporting hopes for a pause in the Bank of England’s tightening cycle.