Stocks retreated from their all-time highs, with concern about tighter U.S. restrictions on chip sales to China spurring a selloff in the industry that has powered the bull market.
From the U.S. to Europe and Asia, chipmakers came under heavy pressure. American powerhouses Nvidia Corp., Advanced Micro Devices Inc. and Broadcom Inc. drove a closely watched semiconductor gauge down 5%.
Across the Atlantic, ASML Holding NV tumbled over 10% even after the Dutch giant reported strong orders. Those moves followed a plunge in Tokyo Electron Ltd., which led a slide in Japan's Nikkei 225 Stock Average.
The Biden administration told allies it's considering severe curbs if companies like Tokyo Electron and ASML keep giving China access to advanced semiconductor technology. The U,S, is also weighing more sanctions on specific Chinese chip firms linked to Huawei Technologies Co.
"This news on the chip front is the kind of UFO (UnForeseen Occurrence) that could indeed create the kind of selling that could be the catalyst for a tradable correction in the stock market," said Matt Maley at Miller Tabak + Co. "Broad indices have become very overbought."
Wednesday's action reprised a recent trend in which capitalization-weighted indexes performed far worse than the average stock, a consequence of weakness in the giant tech companies that dominate them.
With firms such as Apple Inc. and Microsoft Corp. each making up 7% of the S&P 500, declines are hard to offset even when most of the index's constituents are up.
The S&P 500 fell over 1%, while the Nasdaq 100 dropped 2.5%. A gauge of the "Magnificent Seven" megacaps slipped 3%. The Russell 2000 of small firms slid 1%. Wall Street's "fear gauge" — the VIX — spiked toward the highest since early May.
Among the few chipmakers defying the selloff were Intel Corp. and Globalfoundries Inc. And the Dow Jones Industrial Average climbed for a sixth straight day — set for another record. Financial shares outperformed, with U.S. Bancorp surging on solid results.
U.S. 10-year yields were little changed at 4.15%. The dollar fell against most major peers, with the yen up 1.3%.
The Biden administration is in a tenuous position. U.S. companies feel that restrictions on exports to China have unfairly punished them and are pushing for changes. Allies, meanwhile, see little reason to alter their policies when the presidential election is just a few months away.
Source: BTIG 
