Stocks closed mixed as blue chips hit another record high but tech names tumbled on the potential for tighter U.S. restrictions on chip sales to China.
The U.S. presidential campaign season is already sending shockwaves through capital markets, notes José Torres, senior economist at Interactive Brokers.
"Semiconductor shares are getting hammered on news that Trump isn't happy with the technology sector's warmth toward Beijing," Torres writes in a note to clients. "Meanwhile, President Biden is rushing to potentially implement the harshest of penalties to chip firms that trade with China to toughen up on the geopolitical front and possibly shore up his dwindling odds of reelection."
Concerns about additional curbs on sales of chips to China sent semiconductor stocks reeling. Magnificent 7 stock Nvidia (NVDA) dropped 6.6%, with Broadcom (AVGO, -7.9%), Advanced Micro Devices (AMD, -10.2%), Micron Technologies (MU, -6.3%) and several other sector names moving in sympathy.
As a result, the tech-heavy Nasdaq Composite tumbled 2.8% to settle at 17,996, while the broader S&P 500 fell 1.4% to 5,588. The blue-chip Dow Jones Industrial Average, however, set its 22nd record close or the year with a 0.6% gain to 41,198.
Today's divergent market action is raising questions about the sustainability of the current bull market. As Interactive Brokers' Torres notes, much of 2024's equity gains have come from "a handful of names currently under direct threat" from political campaigning.
"An important question is if the rest of the market, which generally lacks thrilling tales on a relative basis, can offset the waning momentum in the Magnificent 7 stocks," the economist says.
J&J helps the Dow
Johnson & Johnson (JNJ, +3.7) was a leading gainer among all 30 Dow Jones stocks after posting better-than-expected earnings. The pharmaceutical giant reported earnings per share (EPS) of $2.82 for the second quarter vs analysts' average estimate of $2.71. Revenue topped $22.3 billion, which was essentially in line with estimates.
Although Johnson & Johnson has long been one of the best dividend stocks for dependable dividend growth, its returns have been less than stellar. Indeed, JNJ trails the broader market for the year to date and has generated negative annualized total returns for the past one- and three-year periods.
Acquisitions, spin-offs and other moving parts make it tough for analysts to update their models. That's partly why the Street is sort of split on the JNJ at current levels.
Of the 23 analysts covering JNJ surveyed by S&P Global Market Intelligence, seven rate it at Strong Buy, five say Buy and 11 have it at Hold. That works out to a consensus recommendation of Buy, albeit with tepid conviction at best.
