Chip Stock Skepticism Fanning S&P 500’s Worst Tumble of New Year

  • Sentiment soured toward tech industry before earnings season
  • Apple slid as two analysts lowered earnings estimates

A selloff in technology stocks that earlier reached the deepest depths in seven weeks was contributing to the U.S. stock market’s worst day of 2017.

Weighed down by Apple Inc. and semiconductor producers, tech shares slipped, dragging the S&P 500 Index to a decline of as much as 0.9 percent. The iPhone maker was hurt by cautious analyst comments, while chipmakers slumped after Taiwan Semiconductor Manufacturing Co. forecast sales that trailed estimates. Goldman Sachs Group Inc. also voiced concern on the industry.

Souring sentiment toward the market’s biggest industry is weighing on the new-year advance and raising concern about the profit recovery that just took hold after a five-quarter contraction. As earnings season starts this week, analysts say income among S&P 500 members probably accelerated to 3.8 percent in the fourth quarter, with growth from tech companies expected to double that rate.

“The Trump rally has played out a bit and now we’re heading into earnings season -- it’s more about putting some proof in the pudding when it comes to where some of these are getting priced at,’’ Jason Cooper, a money manager who helps oversee $4 billion in South Bend, Indiana, at 1st Source Investment Advisors, said in a phone interview. “There is a level of cautiousness heading into a new year.”

Technology shares in the S&P 500 fell 0.6 percent after sinking as much as 1.3 percent, the most intraday since Dec. 1. The Nasdaq Composite Index lost 0.6 percent after climbing for seven straight sessions to record highs.

Apple retreated 0.6 percent, after falling as much as 1.3 percent. Before today, the stock had risen in all but one day of 2017, gaining 3.4 percent. CLSA analyst Avi Silver lowered the first-quarter and full-year estimates for the company, citing weaker iPhone build plans, a “more cautious outlook” in China after a survey of iPhone purchase intentions, and currency headwinds.

RBC analyst Amit Daryanani shared the same concern over dollar strength, and said recent “incremental” production cuts related to managing channel inventory are reason for caution.

The Philadelphia Semiconductor Index slipped 1.4 percent, with all but one of its members falling. TSMC, the world’s largest contract chipmaker, forecast sales of NT$236 billion ($7.4 billion) to NT$239 billion this quarter, trailing the NT$240.9 billion that analysts anticipated, sparking a 3.5 percent drop in its U.S.-traded shares.

‘Guarded Posture’

Goldman analyst Toshiya Hari wrote in a note that the firm has “guarded posture” toward the semiconductor industry due to higher valuations and muted demand. He downgraded Skyworks Solutions Inc. to buy from neutral and the stock lost 2.6 percent.

“There’s a whole portion of the tech sector whose growth is on the back of semiconductors that are slowing down,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group Inc., which oversees $3 billion. “That’s a tougher area.”

The decline in tech shares added to pains for investors who also suffered from losses from banks and oil producers. Only two out of the 11 S&P 500 industries were up Thursday - real estate and phone companies.

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