A three-headed monster hit the market early, with indexes burdened by the chip market sell-off, rising oil prices on Middle East tension, and a 10% post-earnings Netflix decline. Joe Mazzola, Head Trading & Derivatives Strategist at Charles Schwab, shares his insights.
After another washout yesterday, chips’ plunge continued this morning, sending a shudder through the broader market and putting the PHLX Semiconductor Index (SOX) on track for 20% declines from recent highs. Adding to the pain, oil rose 2% to above $80 per barrel as conflict intensified in the Middle East, and Netflix (NFLX) suffered double-digit losses after earnings disappointed.
Wherever things head in coming days, recent chip volatility appears to be more of a valuation and positioning reset than the end of the AI infrastructure cycle. The next hurdle for chips is earnings from so-called “hyperscaler” chip buyers, starting with Alphabet (GOOGL) next week. Choppiness could continue amid U.S. threats to bomb Iranian infrastructure, Iran’s threats to strike U.S. Gulf allies, and next week’s tech earnings. The Cboe Volatility Index (VIX) rose 11% this morning, a cautionary sign.
Major indexes fell Thursday, on track for weekly declines. Still, eight of 11 S&P 500 sectors rose, indicating resilience below the surface. Next week features earnings from Intel (INTC) and Tesla (TSLA) after solid bank results eased concerns about economic fundamentals.
Of the 47 S&P 500 firms reporting so far, 95% topped consensus on earnings per share. In data today, June housing starts exceeded expectations but building permits fell short. Preliminary July Consumer Sentiment is due at 10 a.m. ET and contains fresh inflation expectations.
Three things to watch
Investors step back from semis: Chips delivered a historic first half, but July has brought a sharp pullback as investors rotate out of crowded AI-related hardware and memory names. Investors seem to want clarity on whether higher AI spending reflects rising costs or stronger demand. There’s also concern after China announced its AI startup Moonshot has new models that rival offerings from OpenAI and Anthropic, Bloomberg reported.
A deep sell-off on South Korea’s chip-dominated market—down another 6% today as Reuters reported the country is instituting measures to control the use of leveraged ETFs—is also taking a toll. On a bullish note, memory chip demand appears to be outpacing supply, and memory isn’t just going into data centers, but also into robotics and autonomous vehicles.
The bearish take is that margins and pricing power may be peaking as some hyperscalers search for lower-cost options. This includes exploring the adoption of technology that utilizes significantly less memory or finding lower cost sourcing from China, noted Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research (SCFR).
Streaming engagement concerns mount: Shares of Netflix fell more than 10% early Friday after quarterly earnings per share slightly topped expectations at $0.80 but revenue of $12.56 billion narrowly missed consensus of $12.6 billion. Netflix’s forecast also appeared to disappoint. The company’s projected third quarter earnings and revenue were both below FactSet consensus.
Today’s fresh selling piled it on for Netflix, which entered Friday down 21% year to date amid what Barron’s calls “ongoing concern about engagement” amid recent media mergers. As the publication points out, Netflix faces competition not just from other media companies, but from social media. Engagement concerns ticked up yesterday when Netflix said it would release its “What We Watched” reports annually starting in the first quarter.
Its most recent report was for the first half of 2026, so annual reports would mean less insight for investors. For its part, Netflix said financial performance remains solid and engagement is “healthy.” Still, the company’s disappointing third quarter guidance could raise questions heading into earnings from Amazon (AMZN), Walt Disney (DIS), and other streaming competitors over the coming weeks.
Beef prices sizzle from low supply, labor costs: Restaurants soon report earnings, grappling with rising beef costs. A pound of ground beef costs $6.75, according to the Bureau of Labor Statistics, a new record high. Factors include general inflation, labor shortages, drought, and cattle disease, noted the Chicago Tribune. The number of U.S. beef cows is the lowest since 1961, and last year’s calf “crop” dropped to lows last seen in the 1940s.
This means it could take a while for supplies to recuperate, keeping prices up. A long drought in the western U.S. that reduced food and water supplies for the herd forced ranchers to cull, the Tribune said. Disease outbreaks like the screwworm earlier this year blocked cattle imports from Mexico. And fewer young people are entering the ranching business, sending labor costs up.
Expensive beef also could send competing meat prices higher. All this means restaurants and grocery stores might face margin trouble, forced to either eat rising costs or pass them along to customers. The issue comes to a head on Wall Street in early August when McDonald’s (MCD) and Wendy’s (WEN) report. Shares of both fell recently.
On the move
Energy firms led gainers this morning ahead of the open, including 2% gains for Valero Energy (VLO), ConocoPhillips (COP), and ExxonMobil (XOM).
SpaceX (SPCX) retreated another 4% this morning and stayed below its $135 initial public offering (IPO) price. The latest drop came after the company aborted the launch of a Starship rocket. CEO Elon Musk said the next launch attempt could occur in a few days.
Intuitive Surgical (ISRG) dropped nearly 10% in early trading despite results topping consensus. The robotic surgical tool maker sees worldwide Da Vinci procedure growth up 13.5% to 15.5% this year but appeared to disappoint by not raising its outlook. Shares have been under pressure amid worries that U.S. procedure growth is slowing due to higher insurance costs and the popularity of weight-loss drugs.
Alphabet (GOOGL) fell 4.4% Thursday and lost another 2% this morning after Bloomberg reported that the company is “months behind schedule” delivering Gemini 3.5 Pro. A flagship AI model for Alphabet, it has faced delays as the company tries to improve its capabilities, especially coding, Bloomberg said.
The floor of the market was littered with debris from plunging chip stocks Thursday, and the damage worsened this morning. The SOX fell more than 4% Thursday as memory names like Western Digital (WDC), Micron, SK Hynix (SKHY), and Sandisk (SNDK) felt more pressure. Those names were back in the selling column early today, along with a 5% drop for Applied Materials (AMAT), 4.5% for Intel, and 4% for Corning (GLW).
Overall, tech had one of its worst days in a while Thursday, with 5% or worse losses for Arm Holdings (ARM), Advanced Micro Devices (AMD), Oracle (ORCL), Broadcom (AVGO), Super Micro Computer (SMCI), and Marvell Technology (MRVL). The Nasdaq-100® (NDX), which includes most of the largest tech firms, has descended 5% from its early June high.
At the same time, the S&P 500 Equal Weight Index (SPXEW), which weighs all components equally, rose 1% Thursday to just below the all-time high close set earlier this month.
