Semiconductor Sector Slumps as Fed Chair News Shakes Markets: The Chip Stocks Story

Wall Street’s major indices closed Friday in the red, with market weakness concentrated in semiconductor and mining equities after President Trump announced Kevin Warsh as his nominee for the next Federal Reserve Chair. The S&P 500 retreated 0.43%, the Dow Jones Industrials declined 0.36%, and the Nasdaq 100 dropped more steeply at 1.28%. March futures contracts reflected similar pressure, with S&P 500 E-mini futures sliding 0.43% and Nasdaq E-mini futures sinking 1.35%.

The Fed Chair Effect: Why Markets Retreated

The market’s selloff centered on Mr. Warsh’s nomination, signaling a potentially more hawkish monetary policy stance than current Fed Chair Powell’s approach. During his tenure as a Federal Reserve Governor from 2006 to 2011, Warsh consistently highlighted inflation concerns, positioning him as less inclined toward aggressive interest rate reductions. This perception rattled fixed income investors and equity markets alike. Powell’s current term extends through May, making the succession decision a critical focal point for policy direction.

The 10-year Treasury yield surged to its highest level in a week, climbing 1 basis point to 4.241%, reflecting expectations of a less accommodative Fed under potential new leadership. The dollar strengthened on the news, while gold prices crashed to their lowest point in 1.5 weeks as investors repositioned away from defensive assets.

Additional pressure came from stronger-than-expected US producer prices for December. PPI final demand rose 0.5% month-over-month and 3.0% year-over-year, outpacing forecasts of 0.2% m/m and 2.8% y/y. Core PPI (excluding food and energy) climbed 0.7% m/m and 3.3% y/y versus expectations of 0.2% m/m and 2.9% y/y. These hawkish economic prints reinforced perceptions that the Fed may maintain a restrictive policy posture longer than some market participants had anticipated.

Chip Stocks Bear Brunt of Decline: Understanding the Semiconductor Weakness

The semiconductor sector emerged as Friday’s biggest loser, with chip stocks tumbling across the board. Major semiconductor manufacturers and equipment makers suffered significant setbacks. KLA Corp plummeted more than 15%, while Western Digital dropped more than 11%. Storage and memory plays like Seagate Technology fell over 9%, and Advanced Micro Devices (AMD) retreated more than 6%.

Equipment suppliers providing tools to chip manufacturers also faced substantial headwinds. Lam Research and Applied Materials each fell more than 5%, with Microchip Technology and Micron Technology declining more than 4%. Smaller cap chipmakers ON Semiconductor, Marvell Technology, NXP Semiconductors, and ARM Holdings all posted losses exceeding 2%.

The selloff in chip stocks reflected broader concerns about cyclical weakness in technology infrastructure investments. As the Fed potentially shifts toward maintaining higher rates for longer, capital expenditure in semiconductor fabrication and equipment purchases may face headwinds. Additionally, some market participants rotated out of high-growth technology positions amid the rising rate environment.

Mining Stocks Crater Amid Precious Metals Collapse

Mining equities took a particularly severe blow as precious metals experienced a spectacular crash. Gold prices plunged more than 11% while silver prices crashed more than 31%—the latter experiencing one of its sharpest single-day declines in recent years. These moves occurred despite precious metals having posted new all-time highs just days earlier, suggesting capitulation selling and long liquidation pressure.

The dollar rally, triggered by the Fed Chair news and hawkish PPI data, made precious metals priced in dollars less attractive. Coeur Mining tumbled more than 17%, Hecla Mining fell more than 15%, Barrick Mining retreated more than 12%, and Newmont Mining dropped more than 11%. Freeport McMoran, a diversified mining concern, declined more than 7%.

Other Market Movers: Winners and Losers

Earnings-Driven Moves

Deckers Outdoor emerged as the session’s top performer in the S&P 500, rallying more than 19% after reporting Q3 net sales of $1.96 billion, beating consensus estimates of $1.87 billion. Management also raised full-year guidance to $5.40-$5.43 billion versus a prior estimate of $5.35 billion and consensus of $5.36 billion.

Verizon Communications led gainers in the Dow Jones Index, jumping more than 11% after announcing the addition of 616,000 new subscribers in Q4 and authorizing a $25 billion share repurchase program. Charter Communications advanced more than 11% after reporting Q4 residential customers of 29.61 million, exceeding the consensus estimate of 28.70 million.

SanDisk surged more than 6% following Q2 revenue of $3.03 billion, substantially above the $2.67 billion consensus. Air Products and Chemicals climbed more than 6% after Q1 sales of $3.10 billion topped expectations of $3.05 billion. Colgate-Palmolive gained more than 6% with Q4 net sales of $5.23 billion, exceeding the consensus of $5.13 billion. Lumentum added more than 3% after Morgan Stanley increased its price target to $350 from $304.

Disappointing Earnings

PennyMac Financial Services collapsed more than 33% after Q4 net revenue of $538.0 million fell substantially short of the $626.8 million consensus estimate. Schneider National declined more than 9% with Q4 operating revenue of $1.40 billion coming in below expectations of $1.45 billion. AppFolio slipped more than 8% after issuing full-year revenue guidance of $1.10-$1.12 billion, trailing the consensus of $1.13 billion. Olin Corp fell more than 6% following management commentary that Q1 2026 adjusted EBITDA would decline sequentially from Q4 2025 levels. American Express retreated more than 1% despite reporting Q4 EPS of $3.53, slightly below the $3.56 consensus.

Sector-Specific Weakness

Video game stocks faced particular pressure following Google’s announcement of Project Genie, an AI tool potentially disruptive to traditional game development workflows. Unity Software crashed more than 23%, Roblox plunged more than 12%, and Take-Two Interactive Software fell more than 7%.

Economic Data and Fed Commentary Paint Mixed Picture

On the positive side, the US January MNI Chicago PMI surged to 54.0, a jump of 11.3 points that markedly exceeded the consensus forecast of 43.7 and represented the strongest expansion pace in over two years. This resilient regional manufacturing data supported the case for underlying economic momentum.

Fed communications remained bifurcated. St. Louis Federal Reserve President Alberto Musalem cautioned restraint on rate cuts, stating: “With inflation above target and the risks to the outlook evenly balanced, I believe it would be unadvisable to lower the fed funds rate into accommodative territory at this time.” Conversely, Fed Governor Christopher Waller expressed the counterview, noting: “Monetary policy is still restricting economic activity, and economic data make it clear to me further easing is needed.”

On the fiscal front, President Trump announced a tentative agreement with Senate Democrats to avert a partial government shutdown. The deal would provide two-week funding for the Department of Homeland Security while allowing continued negotiations on immigration enforcement, alongside full-year appropriations for several other agencies. House Speaker Johnson indicated that a 72-hour voting period would be required, making some temporary disruption likely, though the impact would likely be minimal if quickly resolved.

Markets are currently pricing in a 17% probability of a 25-basis-point rate cut at the next policy decision on March 17-18, suggesting considerable skepticism about near-term easing given the latest hawkish signals.

Fixed Income and European Markets React to Fed Signals

The 10-year Treasury note traded under pressure Friday, with the yield reaching 4.277% intraday—its highest point in a week. European government bonds also climbed in yield as central bank divergence became more apparent. The 10-year German Bund yield rose 3 basis points to 2.843%, while the 10-year UK Gilt yield jumped 11 basis points to 4.522%.

The Eurozone December unemployment rate unexpectedly declined 0.1 percentage point to match a record low of 6.2%, suggesting a tighter labor market than the consensus expectation of no change at 6.3%. The ECB’s 1-year inflation expectations remained stable at 2.8% versus a forecast decline to 2.7%, while the 3-year inflation expectations surprisingly climbed 0.1 to 2.6%—a two-year high compared to the consensus view of a decline to 2.4%.

Eurozone Q4 GDP expanded 0.3% quarter-over-quarter and 1.3% year-over-year, marginally exceeding the consensus forecasts of 0.2% q/q and 1.3% y/y. German January CPI (harmonized for EU comparison) declined 0.1% month-over-month while rising 2.1% year-over-year, slightly beating expectations of -0.2% m/m and +2.0% y/y.

Interest rate swap markets are pricing in just a 2% probability of a 25-basis-point rate hike from the European Central Bank at its next policy meeting on February 5.

Overseas Markets Close Mixed Amid Global Uncertainty

The Euro Stoxx 50 managed a modest advance, closing up 0.95%. China’s Shanghai Composite fell to its lowest level in 3.5 weeks, ending the session down 0.96%. Japan’s Nikkei Stock 225 posted a nearly flat close, down just 0.10%.

Earnings Season Momentum Provides Some Support

Despite Friday’s overall weakness, earnings season is providing underlying support to valuations. Q4 earnings reports from 102 S&P 500 companies are scheduled for this week. Of the 143 companies that have already reported, 77% have beaten expectations—a positive track record. Bloomberg Intelligence forecasts S&P 500 earnings growth of 8.4% for Q4, with growth excluding the “Magnificent Seven” megcap technology stocks expected at 4.6%, suggesting broad-based earnings resilience across the market.