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U.S. equity futures slumped in early Wednesday trading, while the dollar retreated and Treasury yields rallied, as investors reacted to presidential front-runner Donald Trump’s Taiwan-related comments that rattled global markets.
Stocks scaled another set of record highs Tuesday, with the Dow surging 743 points, or 1.85%. Markets extended their recent rally on the back of bets that a second Trump administration would benefit U.S. companies and economic data suggesting the Federal Reserve would begin cutting interest rates as early as September.
Markets look set to give back a chunk of those gains today, however, following remarks from Trump in an interview with Bloomberg Businessweek. In the discussion he appeared to waver from the U.S.’s commitment to protect Taiwan, which sits just 81 miles from China’s mainland but has operated independently since 1949.
“Taiwan took our chip business from us,” Trump said. “I mean, how stupid are we? They took all of our chip business. They’re immensely wealthy.”
Former President Donald Trump has suggested a big change in U.S. policy with respect to its commitment to protect Taiwan.
Semiconductor stocks tumbled in overnight trading: Taiwan Semiconductor (TSM) , the world’s biggest contract manufacturer, shed more than $30 billion in market value, and Europe’s ASML (ASML) fell 7.3% in Amsterdam despite stronger-than-expected second-quarter earnings from the chip design maker.
Nvidia (NVDA) , Advanced Micro Devices (AMD) and Micron Technology (MU) were all marked firmly lower in premarket trading as well, pulling Nasdaq futures down more than 245 points heading into the start of trading.
Related: Investors reset bets for stocks, bonds after Trump shooting
Futures contracts tied to the S&P 500 are also indicating a big opening bell decline of around 40 points. That market move is tied to both the outsized moves in chip stocks and to reports that both Trump and President Joe Biden would be willing to enhance tariffs on China-made goods as part of their broader economic policies.
The Dow Jones Industrial Average, meanwhile, is called just 67 points lower as investors continue to rotate from megacap tech stocks to domestic value stocks on the back of a presumed Trump win in November. That rotation has also lifted the small-cap Russell 2000 more than 10% over the past five days to the highest levels of the year.
The US Small Cap ETF is up 10.4% in the last 4 trading days and has outperformed the S&P 500 ETF by 9.8% over that period, the largest 4-day outperformance on record. $IWM $SPY
Chart of the Day: https://t.co/MfCOXKYVb1 pic.twitter.com/9nigdfZEeT
— Charlie Bilello (@charliebilello) July 16, 2024
Other stocks on the move heading into the start of the trading day include Johnson & Johnson (JNJ) . The stock rose 1.3% after the health-care group posted stronger-than-expected second-quarter earnings but trimmed its full-year profit forecast in line with new accounting rules from the Securities and Exchange Commission.
In the bond market, benchmark 10-year Treasury note yields were holding at 4.171% in early New York trading ahead of housing-starts data for June at 8:30 a.m. U.S. Eastern Time. Two-year notes were changing hands at 4.457%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.57% lower at 103.698 following market reaction to Trump’s comments in the Bloomberg interview.
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Overseas, Europe’s Stoxx 600 index fell 0.44% in Frankfurt, with tech stocks leading declines. Britain’s FTSE 100 rose 0.04% despite a hot domestic inflation reading for June that could challenge Bank of England rate-cut bets.
Overnight in Asia, Japan’s Nikkei 225 ended 0.43% lower in Tokyo, as the yen improved to 156.38 against the U.S. dollar and tech stocks slumped. The regionwide MSCI ex-Japan index edged 0.02% higher into the close of trading.
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