Chip stocks drop after HP, Seagate warn on demand

CHIP STOCKS DROP AFTER HP, SEAGATE WARN ON DEMAND (1220 ET/1620 GMT)

Chip stocks are adding to recent deep losses on Wednesday after dismal quarterly reports and forecasts from HP Inc and Seagate Technology Holdings added to fears of an industry downturn.

The Philadelphia semiconductor index dropped more than 1%, bringing its loss since mid-August to almost 13%.

Late on Tuesday, Seagate slashed its quarterly earnings outlook as an economic slowdown hits orders for the company's hard disks and server storage products from enterprise customers.

Also late on Tuesday, HP Inc reported weak quarterly results and gave a similarly disappointing forecast, including weaker demand for personal computers.

Shares of Seagate dropped 3% while HP fell more than 6%.

"Inflation increased in many parts of the world, and this led to lower consumer spending for our product categories. And demand in Europe worsened against the backdrop of the Russia-Ukraine war," HP Chief Excutive Enrique Lores told analysts during a conference call.

Those weak reports helped push Seagate rival Western Digital down 2.2%.

With consumer demand taking a hit from higher interest rates and economies losing steam in many parts of the world, a number of investors expect the chip industry is heading for its first global sales decline since 2019.

Advanced Micro Devices and Nvidia, which in recent weeks have also given weak outlooks, both fell more than 2%.

The chip index has is now down 32% year to date.

(Noel Randewich)

SOME SEE INFLATION ON THE MEND IN LIFT FOR WALL STREET (1155 ET/1555 GMT)

There are still some investors on Wall Street who believe inflation will slow a lot faster than Federal Reserve chair Jerome Powell has implied. This view seemed to give stocks some early morning support before they drifted lower and then turned higher again.

Many investors are concerned the Federal Reserve will squeeze the holy hell out of the U.S. economy to tame inflation, fears that were given extra fuel on Tuesday from data suggesting that a tight labor market would force interest rates higher and faster.

The indexes struggled to find a direction on Wednesday, with S&P 500 and Nasdaq rising early morning trade before they headed south, along with the Dow Industrials and then pared losses again.

Six of the 11 major S&P 500 sectors were higher, with gainers led by communication services, while Materials and consumer discretionary were the biggest decliners. Growth and value indexes were both choppy, while small caps and Dow Transports were lower and semiconductors underperformed.

Bitcoin was above the $20,000 level, up 1.45% in a sign of at least some risk appetite. The dollar was lower and the 10-year U.S. Treasury's yield was little changed.

Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia said that markets misread the Conference Board's report on consumer confidence as a sign that the Fed will hike rates more than expected

"The Fed is prone to mistakes and there is a very good chance that inflation comes down for reasons other than rate increases," Cox said in a report issued on Tuesday.

In fact, housing data on Tuesday suggest shelter costs in core CPI and PCE inflation already are coming off the boil.

Bill Adams, chief economist for Comerica Bank in Dallas pointed to the FHFA House Price Index increase of 0.1% in June vs the 0.8% consensus and down from 1.3% the prior month, which was revised lower from the previously reported 1.4%.

Much slower house price increases or even declines will pass through to slower CPI/PCE inflation on a one- to three-quarter lag, Adams wrote on Tuesday.

Second-quarter house sales and construction slowed sharply and will likely continue at much lower levels the rest of this year and into 2023 than during the 2020-2021 boom, he said.

Slower house price increases is part of what the Fed wants to see before they will be convinced that inflation is coming under control. They also are looking for slower increases in total inflation, core inflation and wages, Adams said.

Here's a snapshot of mid-morning market prices:

(Herbert Lash)

BED BATH & BEYOND'S AUGUST ROLLER COASTER GIVES SHORTS SOME REPRIEVE (1039 ET/1439 GMT)

This August has been a roller coaster month for both retail investors and short sellers covering the embattled retailer Bed Bath & Beyond.

Shares of the company, down 22.8% on Wednesday, were still up about 86% so far this month and on track for their biggest monthly gain since January 2021. However the stock last trading at $$9.35 was well below its most recent intraday high of $30 reached on August 17.

The stock has seen dramatic volatility this month with billionaire Ryan Cohen's sale of his 9.8% stake sending shares crashing following a meme-fueled rally.

Bed Bath & Beyond shorts were down $545 million in mark-to-market losses as the retailer hit its recent high of $23.08 on August 17 but have since recouped roughly $330 million of those losses as the stock lost ground, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

"Retail long shareholders may be holding onto their shares with diamond hands, but there are apparently a ton of paper hands trading in and out of this name all day long," added Dusaniwsky. "Momentum and trend day traders and institutional traders are active in this meme stock."

While short covering has aided the recent uptick in stock prices, long buying and selling were the main reason behind the company's volatile price moves, he added.

Bed Bath & Beyond was the most-shorted consumer discretionary stock with 38.61% short interest as of mid-August, according to the latest data analysis from S&P Global Market Intelligence.

On Wednesday, the retailer's shares were falling after it announced deals for more than $500 million in new financing and plans to close 150 stores, cut jobs and overhaul its merchandising strategy in an attempt to turn around its money-losing business. The retailer also announced a plan to raise money by issuing new shares.

(Bansari Mayur Kamdar, Ankur Banerjee)

WALL ST INDICATES HIGHER OPEN AFTER 3-DAY SELL-OFF (0905 EDT/1305 GMT)

With investors closely watching economic data for clues as to the Federal Reserve's next rate hiking moves, S&P 500 futures were indicating a higher open on Wednesday.

U.S. private payrolls increased by 132,000 jobs in August after rising 270,000 in July, the ADP National Employment Report showed on Wednesday.

On Tuesday U.S. stocks closed lower for a third straight session after a rise in job openings appeared to give the Fed more reasons to maintain its aggressive path of interest rate hikes to combat inflation.

Fed Chair Jerome Powell on Friday reaffirmed the central bank's determination to raise rates even in the face of a slowing economy.

Here is the premarket U.S. snapshot:

(Sinéad Carew)

FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE: