Dow Jones down 17 points after chipmaker stocks decline
The Dow Jones plummets after pessimistic Q3 guidance from Broadcom's CEO.
The Dow Jones tumbled after a dire forecast from Hock E. Tan, the chief executive officer (CEO) of chipmaker Broadcom. Tan said that the US-China trade war and the US ban on conducting business with Chinese electronics giant Huawei could cost the corporation $2 billion for the rest of 2019.
US-China trade war and Huawei ban weigh on chipmaker stocks
Broadcom had worse-than-expected Q2 revenue and Tan said that the US-China tariff dispute and Huawei blacklist will cut into the chipmaker’s future profits. Huawei is such an important customer to Broadcom that the semiconductor manufacturer received $900 million in revenue in 2018 from the electronics company. Tan spoke about how the trade war and Huawei ban impacted Broadcom.
‘With respect to semiconductors, it is clear that the US-China trade conflict including the Huawei export ban is creating economic and political uncertainty and reducing visibility for global OEM [original equipment manufacturer] customers,' said Tan.
'As a result, demand volatility has increased and our customers are actively reducing inventory levels to manage risk,' said Tan.
After Broadcom’s disappointing news, the company’s stock fell 5%. Other chipmakers that are dependent on China to assemble their products like Intel also had share prices decrease.
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, noted that Wall Street is worried that the US-China trade impasse will drag on and continue to impact corporations like Broadcom.
‘Markets are really concerned that the trade war with China is not going to be resolved anytime soon,’ said Zaccarelli.
What’s next for the Dow Jones?
The concerns from Broadcom about the US-China trade war could lead investors to closely watch the US Federal Reserve’s meeting next week. Some investors want the Fed to cut interest rates to counteract the economic effects of the tariff dispute between the two nations and boost the economy.
However, there is still positive economic news like strong May retail sales that may not justify an interest rate reduction this summer. Andrew Hunter, senior US economist at Capital Economics, says that the Fed may wait until autumn to take action.
‘The retail sales data reinforce our [Capital Econonics] view that [Fed] officials are likely to wait until the September FOMC [Federal Open Market Committee] meeting before pulling the trigger [and implementing interest rate cuts],’ said Hunter.
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