The decline in U.S. stock index futures on Wednesday was largely attributed to downbeat results in chip stocks. Advanced Micro Devices (AMD) saw a 6.3% drop in premarket trading due to disappointing forecast for AI chip sales, while Super Micro Computer (SMCI) reported third-quarter revenue below estimates, leading to a 9.1% decline in its stock. Other chipmakers like Nvidia and Micron Technology also experienced losses, with both down more than 2%. These negative results impacted the overall market sentiment and raised concerns among investors.
Investors exercised caution as they awaited more economic data and the Federal Reserve’s interest rate decision later in the day. The previous day’s lower stock performance was influenced by data showing a rise in labor costs and worsening consumer confidence, dampening expectations of rate cuts. The economic data scheduled for release during the day included the April ADP National employment numbers, the S&P Global final manufacturing PMI data, the ISM manufacturing PMI data, and the JOLTS job openings figures. These reports would provide insights into the state of inflation in the U.S. economy before the Fed’s interest rate decision.
Brendan Murphy, Head of Global Fixed Income, North America, at Insight Investment, highlighted the changing script regarding rate cuts. Initially, many expected the Fed to be one of the first central banks to cut rates, but now it appears to be one of the last. Despite expectations of rate cuts later in the year, disinflation in the U.S. has stagnated compared to other countries. Money markets anticipated the U.S. central bank to maintain the current rates, with only around 28 basis points of rate cuts priced in for the year, a significant decrease from the start of 2024. This shift in rate cut expectations, along with tensions in the Middle East, contributed to a challenging April for U.S. equities.
The first-quarter earnings season and the evolving interest rate outlook would test the performance of U.S. equities in May. Historically, the S&P 500 has shown a pattern of greater gains between November and April compared to the period between May and October, leading to the popular saying “Sell in May and Go Away.” The current market sentiment reflects this trend, with Dow E-minis, S&P 500 E-minis, and Nasdaq 100 E-minis all down in early trading. Starbucks experienced a significant drop in premarket trading after cutting its annual sales forecast, while Pinterest surged following a positive second-quarter revenue forecast.
The decline in U.S. stock index futures was driven by disappointing results in chip stocks, caution among investors ahead of key economic data and the Fed’s interest rate decision, and changing perspectives on global rate cuts. The market performance in May would be influenced by the ongoing earnings season and the clarity on the interest rate outlook. It is essential for investors to stay informed about these developments to make informed decisions in a dynamic and ever-changing market environment.