The U.S. Stock Market Opens Lower Led by Tech Stocks, and Investors Are Watching Comments From Fed Chair Powell

U.S. stocks opened on a lower note on Wednesday, with the technology sector leading the decline, following reports of a potential new ban on exports of AI-related products to China. Additionally, investors were closely monitoring comments by Federal Reserve Chair Powell at a conference in Portugal hosted by the European Central Bank.

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The Dow Jones Industrial Average dropped 108 points, or 0.3%, to reach 33,815. The S&P 500 dipped 13.8 points, or 0.3%, to 4,365, while the Nasdaq Composite fell 32 points, or 0.2%, to 13,523. In the previous trading session, the Dow Jones Industrial Average rose 212 points, or 0.63%, to 33,927, the S&P 500 increased 50 points, or 1.15%, to 4,378, and the Nasdaq Composite gained 220 points, or 1.65%, reaching 13,556.

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The decline in Nasdaq futures was driven by the news of a potential ban on AI chip sales to China under the Biden administration. This setback interrupted the recent market rally that was fueled by positive U.S. data on durable goods orders, home sales, and consumer confidence. Analysts noted that the AI chip ban report had impacted Nvidia, a significant player in China with 20% of its revenues coming from the country. Nvidia stock dropped 1.9% on Wednesday, while Advanced Micro Devices (AMD), another AI chip maker, saw a 1.3% decline.

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In terms of economic data, the trade deficit in goods narrowed by 6% in May, attributed to lower oil prices and decreased consumer demand for imports, potentially indicating a softer U.S. economy. The trade gap in goods decreased to $91.1 billion from April's six-month high of $97.1 billion, as reported by the Census Bureau. Furthermore, advanced retail inventories in May rose by 0.8%, while advanced wholesale inventories in May experienced a 0.1% drop.

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Market participants were also closely monitoring the annual forum on central banking held in Sintra, Portugal, by the European Central Bank. A panel discussion featuring Federal Reserve Chair Powell, alongside the heads of the central banks of the U.K., eurozone, and Japan, was of particular interest. With concerns over higher borrowing costs and inflationary pressures, any comments on these topics, especially from Powell, could influence market sentiment.

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Despite the cautious atmosphere, Mark Newton, Head of Technical Strategy at Fundstrat, sees potential for further market gains. He emphasized the importance of Tuesday's rally, which halted the recent decline and allowed the S&P 500 to recover almost 50% of the pullback since mid-June highs. Newton believes that the lack of severe downside breadth during recent weakness was encouraging, and he anticipates the S&P 500 to test and surpass mid-June highs, potentially pushing prices beyond SPX-4500.

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