Tech Stocks Sink, AI Rally Dwindles As Powell Hints At Further Hikes: What's Driving Markets Wednesday

The U.S. stock market fell on Wednesday, with tech stocks largely underperforming the rest of the market, as Fed Chair Jerome Powell signaled during testimony before the House Financial Services Committee that additional hikes may be forthcoming to bring inflation back to the Fed’s target.

Nearly all FOMC participants anticipated it would be reasonable to raise interest rates somewhat more by year’s end, Powell said, stressing that the decision to pause hikes doesn’t mean the end of tightening. 

The market slide was spurred by the negative performance from tech titans, with Tesla Inc. TSLA, Nvidia Corp. NVDA and Netflix Inc. NFLX down 4.5%, 2.4% and 2.3%, respectively.

FedEx Corp. FDX reported slightly better-than-anticipated earnings, but missed revenue estimates and provided disappointing guidance for the upcoming quarters.

Earlier in the day, markets negatively reacted to a hotter-than-expected U.K. inflation rate in May, which fueled expectations for more aggressive Bank of England rate hikes.

Traders increased their expectations for a 25-basis-point Fed rate hike in July, from 62% last week to 79% today. This shift caused U.S. Treasury yields to move higher during the session.

Cues From Wednesday’s Trading:

The S&P 500 Index fell 0.3%, while the tech-heavy Nasdaq 100 Index lost 170 points or 1.1% for the day.

The Dow Jones Industrial Average held steady, while small caps in the Russell 2000 had a timid 0.1% drop.

U.S. Indices’ Performance on Wednesday

Thursday’s Trading In Major US Equity ETFs: In midday trading Wednesday, the SPDR S&P 500 ETF Trust SPY was 0.3% lower to $435.80, the SPDR Dow Jones Industrial Average ETF DIA held steady at $340.60 and the Invesco QQQ Trust QQQ fell 1.1% to $362.80, according to Benzinga Pro data.

There were performance differences among sectors. The Energy Select Sector SPDR Fund XLE rebounded 1.5% after Tuesday’s underperformance, while the Technology Select Sector SPDR Fund XLK, the Communication Services Select Sector SPDR Fund XLC and the Consumer Discretionary Select Sector SPDR Fund XLY fell 1.4%, 1.1% and 1%, respectively.

The Utilities Select Sector SPDR Fund XLU and the Consumer Staples Select Sector SPDR Fund XLP increased by 0.6% and 0.5%, respectively, indicating sector rotation away from tech and growth.

Latest Economic Data:

The Mortgage Bankers Association reported a 0.5% increase in mortgage application volume for the week ended June 16, marking a significant slowdown from the prior week’s 7.2% gain.

The average contract interest rate on 30-year fixed-rate mortgages declined by 4 basis points to 6.73% in the week ending June 16, marking the third consecutive week of declines.

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Stocks In Focus:

• Chipmakers traded lower on Wednesday. Aside from Nvidia’s 2.5% drop, Advanced Micro Devices Inc. AMD fell 5.7%, Intel Corp. INTC by 5.4%.
• Oil stocks gained with ConocoPhillips COP up 2.2%, Exxon Mobil Corp. XOM up 1.7%.
• Dollar Tree Inc. DLTR rose 5% after the company said it plans to deliver annual earnings of $10 or more per share in fiscal 2026.
• Coherent Corp. COHR fell 13% after Rosenblatt Securities downgraded the stock from Buy to Neutral.
• Among AI stocks, C3.ai Inc. AI fell 12%, while Palantir Technologies Inc. PLTR was down 7%.

Commodities, Bonds, Other Global Equity Markets:

Crude oil rose 2.4%, with a barrel of WTI-grade crude jumping to $72.50. The United States Oil Fund ETF USO was 1.7% higher to $65 per share.  

Treasury yields slightly rose, with the 10-year yield down by 2 basis points to 3.74% and the two-year yield up by 2 basis points to 4.71%. The iShares 20+ Year Treasury Bond ETF TLT was 0.1% lower for the day. 

The dollar fell, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, down 0.4%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.5% higher to 1.0972.

European stock indices closed slightly in the red. The SPDR DJ Euro STOXX 50 ETF  FEZ was flat for the day. 

Gold held steady at $1,933/oz. The SPDR Gold Trust GLD was 0.1% lower to $179.60. Silver continued to fell 1.5% to $22.8, with the iShares Silver Trust SLV down 1.6% to $20.90. Bitcoin BTC/USD rose 5.3% to $29,913.

Staff writer Piero Cingari updated this report midday Wednesday. 

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