Major US stock indices closed lower today, reaching their lowest levels since May. The Dow dropped by 61.90 points, or 0.14%, finishing at 44,111.74. The S&P index fell by 30.77 points, or 0.49%, closing at 6,299.17. The NASDAQ index decreased by 137.03 points, or 0.65%, ending at 20,916.55. In contrast, the small-cap Russell 2000 index rose by 13.36 points, or 0.60%, reaching 2,225.67. Palantir shares surged by 7.85% after reporting revenue over $1 billion, exceeding expectations.

Chip Stocks Drop

Chip stocks fell after President Trump suggested new tariffs might be coming. Broadcom slid by 1.61%, Nvidia dropped by 0.97%, and AMD declined by 1.40% with its earnings report expected soon. Super Micro Computers reported lower earnings and revenue, with an EPS of $0.41 compared to the expected $0.45, and revenues of $5.2 billion versus the anticipated $6.0 billion. Despite raising future revenue guidance, their shares dropped 12% in after-hours trading. AMD’s earnings showed an EPS of $0.54, beating the expected $0.47, and revenues of $7.69 billion, higher than the $7.4 billion expected. Their shares rose about 1-2%. The market is reacting to weak economic signals, with today’s ISM data at 49.4, the lowest since May 2025, indicating possible contraction. This downturn in the manufacturing sector is likely causing large investors to become more cautious. The declines in major indices like the S&P 500 and NASDAQ reflect this risk-averse sentiment.

Market Volatility Expectations

Given the current challenges, we believe market volatility is underestimated. The VIX, which tracks expected volatility, closed below 14 today, a level that does not seem to reflect the slowing economy and rising political uncertainties. We anticipate an increase in volatility in the coming weeks, making long-volatility positions appealing. Concerns about new tariffs are directly impacting the semiconductor sector, as seen with the declines in Broadcom and Nvidia. Looking back at 2018-2019, we know that tariff threats can cause significant and unpredictable fluctuations in these globally reliant stocks, making long positions in chipmakers risky without some downside protection. Interestingly, small-cap stocks in the Russell 2000 rose today while large-cap stocks fell. This divergence suggests a potential shift away from mega-cap tech, which has dominated the market for years, toward other sectors. This could mark the beginning of a broader market trend. After-hours reactions to earnings provide further insight into market sentiment. Super Micro Computer’s 12% drop due to an earnings miss, despite strong guidance, indicates low tolerance for companies that fail to meet expectations. In contrast, AMD’s strong results were rewarded with only a modest 1-2% gain. In this context, we should consider strategies to guard against downturns in large-cap tech, such as buying put spreads on the QQQ. At the same time, the strength in small caps presents opportunities; exploring call options on the IWM may be worthwhile. For individual tech stocks, using collars to protect gains seems smart. Create your live VT Markets account and start trading now.

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