Nasdaq Futures Plunge as Chip Selloff Deepens; Netflix Sinks on Disappointing Forecast

The selloff in stocks tied to the AI buildout continued to ripple across global markets. Taiwan's benchmark Taiex and Japan's Nikkei Stock Average slid into technical correction territory on Friday, battered by heavy selling in AI-related shares amid concerns that their valuations have become too stretched following a historic rally in the first half of the year. Also hurting AI-related stocks was a surprise breakthrough from Chinese AI startup Moonshot, which said its Kimi K3 model could compete with the strongest offerings from OpenAI and Anthropic PBC, prompting investors to draw parallels with last year's "DeepSeek moment." U.S. chip and AI infrastructure stocks slid in pre-market trading.

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Netflix (NFLX) also weighed on sentiment, with shares sinking more than -9% in pre-market trading after the streaming giant reported weaker-than-expected Q2 revenue and projected a second consecutive quarter of slowing sales growth.

In addition, sentiment was hit by escalating tensions in the Middle East. American forces carried out a sixth straight night of strikes aimed at degrading Iran's ability to attack commercial shipping in the Strait of Hormuz, targeting coastal surveillance and air defense sites, military logistics infrastructure, and maritime assets. Iran retaliated by launching attacks on U.S. bases in Kuwait, Jordan, and Bahrain. The price of WTI crude rose over +2% on Friday.

In yesterday's trading session, Wall Street's major indices ended in the red. Chip and AI infrastructure stocks tumbled, with Sandisk (SNDK) sinking over -12% to lead losers in the S&P 500 and Marvell Technology (MRVL) slumping more than -8%. Also, mining stocks dropped as metal prices sank, with Coeur Mining (CDE) sliding over -7% and Hecla Mining (HL) falling more than -6%. In addition, AST SpaceMobile (ASTS) tanked more than -17% after the satellite broadband company priced a $1 billion private offering of 1.625% convertible senior notes due 2034. On the bullish side, Abbott Laboratories (ABT) jumped over +10% and was the top percentage gainer on the S&P 500 after the medical device maker posted better-than-expected Q2 results and raised its full-year adjusted EPS guidance.

Economic data released on Thursday showed that U.S. retail sales rose +0.2% m/m in June, in line with expectations, while core retail sales, which exclude motor vehicles and parts, fell -0.2% m/m, weaker than expectations of no change m/m. Also, the U.S. Philly Fed manufacturing index rose to a 4-1/2-year high of 41.4 in July, stronger than expectations of 12.7. In addition, the number of Americans filing for initial jobless claims in the past week unexpectedly fell by -8K to a 10-week low of 208K, compared with the 216K expected. Finally, U.S. pending home sales fell -5.4% m/m in June, weaker than expectations of -0.5% m/m.

"Despite challenges, consumers are still spending, and the labor market shows no signs of cracking. This type of data won't move the Fed's needle either way, but it underscores the ongoing resilience of the U.S. economy," said Ellen Zentner at Morgan Stanley Wealth Management.

Fed Vice Chair Philip Jefferson said on Thursday that the central bank should consider raising interest rates if inflation does not cool soon, but added that monetary policy is well positioned for now. Also, Dallas Fed President Lorie Logan said she believes policymakers should raise interest rates, noting that inflation does not appear to be on a sustainable path back to the Fed's 2% target. "I currently believe modestly higher interest rates would better balance the outlook and risks," Logan said. In addition, Kansas City Fed President Jeff Schmid said inflation remains his biggest concern given the risk of a further acceleration in the coming months. "My primary concern is inflation, which is too hot and has been above target for too long. As such, my focus remains on inflation in setting the correct course for policy," Schmid said.

Meanwhile, U.S. rate futures have priced in an 88.9% probability of no rate change and an 11.1% chance of a 25 basis point rate hike at July's monetary policy meeting.

Today, investors will focus on the University of Michigan's U.S. Consumer Sentiment Index, which is set to be released in a couple of hours. Economists forecast that the preliminary July figure will come in at 51.0, compared to 49.5 in June.

U.S. Industrial Production and Manufacturing Production data will also be released today. Economists project industrial production to rise +0.2% m/m and manufacturing production to rise +0.1% m/m in June, compared to the May figures of +0.1% m/m and unchanged m/m, respectively.

U.S. Building Permits (preliminary) and Housing Starts data will be reported today. Economists expect June Building Permits to be 1.400 million and Housing Starts to be 1.310 million, compared to the May figures of 1.410 million and 1.177 million, respectively.

The U.S. Import and Export Price Indexes will be released today as well. Economists expect the import price index to drop -0.7% m/m and the export price index to fall -0.4% m/m in June, compared to the previous month's figures of +1.9% m/m and +1.3% m/m, respectively.

On the earnings front, property and casualty insurer Travelers (TRV), along with regional banks Truist Financial (TFC), Fifth Third Bancorp (FITB), and Regions Financial (RF), are set to report their quarterly results today. According to Bloomberg Intelligence, companies in the S&P 500 are expected to post an average +24% jump in quarterly earnings for Q2 compared to the previous year.