The Federal Reserve held interest rates steady as widely expected, with the Fed voting 9-3 to leave rates unchanged at 3.5% to 3.75% as inflation remains above its 2% target. According to reports from The Economic Times, Fed Chair Kevin Warsh stated the decision wasn't a sign of inertia and that markets would be free to chart their own course based on economic signals. The lack of updated policy guidance left investors with little clarity on the path for interest rates, with uncertainty likely to keep volatility elevated across bond markets. Traders see a 38% chance of an immediate rate hike, despite signs that price pressures eased last month, with markets expecting interest rates to rise by at least 25 basis points by year-end as tariffs and higher energy costs fuel inflation. As per Dow Jones, Warsh explained why he notes how the financial market has moved to price in tighter monetary policy in the absence of central bank guidance, but emphasized he's not obliged to follow what traders and investors are doing.
The semiconductor selloff has intensified with the VanEck Semiconductor ETF (SMH) falling nearly 18% over the past month after a stellar 75% gain over the previous year. As reported by CNBC TV18, the decline was triggered by weak AI chip guidance from Broadcom, falling memory chip prices, reports of China's progress in semiconductor manufacturing, and forecasts of weaker smartphone demand. The ETF, which tracks the MVIS US Listed Semiconductor 25 Index comprising the 25 largest US-listed semiconductor companies, manages about $67.7 billion in assets and charges an expense ratio of 0.35%. Nvidia accounts for more than one-fifth of the ETF with a 21.7% weight, followed by TSMC at 9.5% and Broadcom at 6.73%, making the fund particularly sensitive to swings in sentiment around AI-related stocks.
The semiconductor selloff has resulted in a massive $2 trillion market cap destruction across the world's most valuable chip stocks since Friday market close. As per CNBC analysis using FactSet data, Nvidia led the rout with a $238 billion loss, while SK Hynix, Samsung Electronics, and Micron lost $176 billion, $173 billion, and $113 billion respectively. The Philadelphia semiconductor index (SOX) has declined nearly 20% over the past month despite rising 92% over the past 12 months, highlighting the recent volatility in the sector. In South Korea, SK Hynix closed 9.61% lower after dropping over 15% despite posting record quarterly profit and revenue, while Samsung Electronics lost more than 5% and LG Innotek fell 10.89%. Japanese chip names also declined significantly, with Kioxia down 13.85% and Tokyo Electron falling 10.59%. According to Morningstar's Michael Field, the decline appears driven by sentiment rather than fundamentals, reflecting loss of confidence in growth stocks that require significant future cash flows.
Asian chipmakers have been the centre of attention this week after a deep selloff in South Korean stocks that wiped more than $2 trillion from the country's equity market. The KOSPI rose 4% in choppy trading on Thursday but is staring at a 12% weekly decline that prompted Finance Minister Koo Yun-cheol to apologise for the introduction of single-stock leveraged ETFs. According to Business Standard, investors are fretful about the returns from massive AI spending, with Gina Kim, portfolio manager for emerging market equities at Nordea Asset Management, noting there appears to be an irrational, panic-like element to the current selling. She suggested that margin balances in both Taiwan and Korea for retail investors are declining but would ideally need to see some levelling off to indicate the panic may stop. However, Samsung Electronics provided some relief by announcing its operating profit jumped 19-fold to a record in the second quarter, helping lift beaten-down investor sentiment. The company posted a record quarterly profit surge of more than 1,800% year over year on booming AI memory chip demand, though investors have largely shrugged off the news amid broader fears over AI-related valuations.
US stocks closed sharply lower on Wednesday after the Federal Reserve left interest rates unchanged, with investors weighing multiple factors including renewed fighting in the Middle East, rising oil prices, and continued technology sector concerns. As reported by The Economic Times, stocks briefly recovered some of their morning losses after the Fed's announcement before turning sharply lower in the final hour of trading. The Dow Jones Industrial Average fell more than 1,100 points, while the Nasdaq and S&P 500 each lost more than 1.5%. Renewed fighting in the Middle East after a four-day pause pushed Brent crude oil above $91 a barrel, up from as low as $72 this month, though it has since slipped below $90 per barrel after jumping over 7% earlier. Investors were also concerned about heavy spending on artificial intelligence by major technology companies, new tariffs announced by President Donald Trump earlier this month, and the ongoing semiconductor sell-off. According to Business Standard, the dollar was on the defensive after the US central bank held steady, with yields on longer-dated US Treasuries rising to 19-year highs. A Divided Fed Leaves Rates Unclear - The Fed voted 9-3 on Wednesday to hold its benchmark rate at 3.5% to 3.75%, with three regional presidents dissenting in favor of a hike. The split marked the most contested vote of Chair Kevin Warsh's short tenure, with Warsh again declining to signal the central bank's next move, pushing 30-year Treasury yields to their highest level since 2007.
The Treasury yield curve steepened after the Fed held rates steady, with 30-year yields jumping more than 10 basis points to the highest level since 2007 during the US session. As reported by The Economic Times, the 30-year yield reached multi-decade highs following the Federal Reserve's policy decision. A Bloomberg gauge of the dollar edged lower for a fifth consecutive day on Thursday, contributing to the overall market volatility. U.S. mortgage interest rates climbed to their highest in about a year last week, with the contract rate on a 30-year, fixed-rate mortgage climbing 7 basis points to 6.76% in the week ended July 24, just shy of a one-year high. According to Dow Jones, the contract rate on a 30-year, fixed-rate mortgage climbed 7 basis points to 6.76% in the week ended July 24, while the rate on 15-year, fixed-rate loans climbed 11 basis points to 6.15%, the highest in just over a year. Fed funds futures now implied around a 60% chance the Fed would lift rates at its next meeting in September and had 33 basis points of tightening priced in by year-end, as reported by Business Standard.
