Nasdaq slides 1% as chip stocks weigh; PCE inflation data keeps Sept rate cut in play

[US Markets Open After President Trump Announces EU Tariff Extension]
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Wall Street on Friday fell, weighed down by a slide in semiconductor stocks. Market participants also received a key in-line inflation reading that did little to change expectations of a Federal Reserve interest rate cut in September.

The benchmark S&P 500 gauge (SP500 [https://seekingalpha.com/symbol/SP500]) was last -0.8% in morning trade, while the blue-chip Dow (DJI [https://seekingalpha.com/symbol/DJI]) was -0.5%.

The Nasdaq Composite (COMP:IND [https://seekingalpha.com/symbol/COMP:IND]) slid -1.2%. Marvell Technology (MRVL) slumped -17.3% and was the top percentage loser on the tech-heavy index after the chipmaker's quarterly report disappointed [https://seekingalpha.com/news/4490396-marvell-tumbles-as-wall-street-worries-over-ai-future] investors. Other chip stocks also came under pressure.

Meanwhile, Nvidia (NVDA), the world's largest chipmaker, declined -3.5%. A report said Chinese tech giant Alibaba (BABA) had developed [https://seekingalpha.com/news/4490363-alibaba-develops-new-ai-chip-to-help-fill-nvidias-absence-in-china] a new artificial intelligence (AI) chip to help fill in the absence left by Nvidia (NVDA) in the Asian market.

Also weighing on markets was Dell Technologies (DELL). The stock was -8.8% amid concerns [https://seekingalpha.com/news/4490422-dells-ai-momentum-continues-to-impress-wall-street-amid-spending-boom] over the PC and electronic maker's quarterly AI server margins.

A busy economic calendar was also the focus on Friday, with the spotlight on the July core personal consumption expenditures (PCE) price index. Widely regarded as the Fed's preferred inflation gauge, the core PCE deflator rose +0.3 M/M, flat from June and matching [https://seekingalpha.com/news/4490386-pce-inflation-maintains-pace-in-july-as-expected] the consensus estimate. On a Y/Y basis, it rose +2.9%, also in line with consensus but ticking up from June's +2.8% reading.

"The headline PCE deflator rose 0.2% in the month taking the headline rate to 2.6%, and core PCE rose 0.3% to register a core rate of inflation of 2.9%. For core PCE, that is the quickest rate of year-over-year inflation since February," Wells Fargo's Tim Quinlan said.

"Our forecast looks for some modest upward pressure on core inflation from goods prices and a bit less pressure from core services. On a nominal basis, two out of the three largest increases in spending in July were in services categories: financial services and housing. A potential challenge for the Fed as it tries to steer inflation lower is that service prices do not continue their trend descent that is showing signs of stalling in recent months," Quinlan added.

The largely tame inflationary signal keeps the Fed on track for an interest rate cut in September, according to the CME FedWatch tool.

"Overall, there is a reasonable case for dismissing some of the higher headline inflation numbers. But regardless there is still some elevation in inflation, one has to be nervous about transitory theories, and the real economy holding up OK," Jason Furman, former deputy director of the U.S. National Economic Council, said on X (formerly Twitter).

"On balance, I would do what Powell has signaled--which is one cut in September and then wait and see how everything is developing rather than locking in an expectation of more rate cuts," Furman added.

Speaking of the Fed, an emergency court hearing over Fed Governor Lisa Cook's lawsuit challenging President Trump’s attempt to remove her from the board is set to play out on Friday.

Turning to the fixed-income markets, U.S. Treasury yields were mixed. Longer-term maturities gained, while shorter-term instruments slipped, keeping the yield curve steep. The benchmark 10-year yield (US10Y [https://seekingalpha.com/symbol/US10Y]) was last up 2 basis points to 4.23%, while the more rate-sensitive 2-year yield (US2Y [https://seekingalpha.com/symbol/US2Y]) was down marginally to 3.63%.

For more, see how Treasury yields have done across the curve [https://seekingalpha.com/etfs-and-funds/etf-tables/bonds] on the Seeking Alpha bond page.

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