S&P 500, Nasdaq lower as semiconductor shares weigh

FILE PHOTO: A Wall Street sign is pictured outside the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri/File Photo

By Lisa Pauline Mattackal and Ankika Biswas

(Reuters) - The S&P 500 and the Nasdaq fell on Friday weighed down by chip stocks, while investors also assessed stronger-than-expected U.S. business activity data.

AI chip firm Nvidia dropped 4.4%, after losses in the previous session saw its market valuation fall back below that of Microsoft.

Semiconductor stocks Qualcomm, Broadcom, Micron Technology and Arm Holdings were down between 2% and 5%, dragging the Philadelphia SE Semiconductor index 2.2% lower.

Technology was the worst hit among the major S&P 500 sector indexes, and was down 1.3%.

Megacaps such as Alphabet, Amazon.com and Apple rose between 0.6% and 1.4%.

U.S. business activity crept up to a 26-month high in June amid a rebound in employment, but price pressures subsided considerably, offering hope that a recent slowdown in inflation was likely to be sustained.

Flash services PMI increased to 55.1 this month, above expectations of 53.7, while manufacturing PMI edged up to 51.7, compared with expectations of a dip to 51.

The market is also assessing a string of weakening economic data, and commentary from U.S. Federal Reserve officials that interest rates could remain higher for longer if there is no consistent improvement in inflation numbers.

Friday's session will mark the expiry of quarterly derivatives contracts tied to stocks, index options and futures, also known as "triple witching", adding to market volatility.

Money markets are still pricing in a 58% chance of a 25-basis point rate cut in September, and still expect about two rate cuts this year, according to LSEG's FedWatch data.

The S&P 500 crossed the 5,500-point milestone during Thursday's session, however, both the benchmark index and the tech-heavy Nasdaq closed lower as megacap stocks pulled back.

Wall Street's bumper gains since the final leg of 2023 have been primarily driven by the likes of Nvidia and a handful of other heavily weighted stocks linked to artificial intelligence. Analysts, however, have raised concerns whether the strong increase in their valuations is sustainable.

"The largest companies in the S&P 500 are excellent, very profitable and growing quickly ... but they are getting a little bit expensive," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

"We wouldn't be surprised if the market takes a breather and cools off a bit in the short term."

At 9:55 a.m. ET, the Dow Jones Industrial Average was up 73.72 points, or 0.19%, at 39,208.48, the S&P 500 was down 17.36 points, or 0.32%, at 5,455.81, and the Nasdaq Composite was down 98.42 points, or 0.56%, at 17,623.17.

Spirit AeroSystems rose 4.8% following a Reuters report that Boeing is nearing a deal to buy back the airplane parts supplier after months of talks.

Sarepta Therapeutics soared 34.8% after the U.S. Food and Drug Administration allowed the expanded use of the company's gene therapy for patients with Duchenne muscular dystrophy aged four and older.

Declining issues outnumbered advancers for a 1.37-to-1 ratio on the NYSE and a 1.14-to-1 ratio on the Nasdaq.

The S&P index recorded 14 new 52-week highs and one new low, while the Nasdaq recorded 12 new highs and 60 new lows.

(Reporting by Lisa Mattackal and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta)