Semiconductor Strength and Fed Comments Limit Losses as Market Breadth Remains Weak

The major averages finished Tuesday with modest losses, but the relatively quiet close masked another weak session beneath the surface. The S&P 500 declined 0.2%, the Nasdaq Composite slipped 0.1%, and the Dow Jones Industrial Average fell 0.3%. All three recovered from their midday lows, supported by strength in semiconductor stocks and a late-afternoon lift following comments from New York Fed President John Williams, while participation across the broader market remained subdued.

Stocks initially hovered near their flat lines before selling pressure became more pronounced late in the morning. The retreat came despite a sizable decline in crude oil, which had provided some early encouragement after reports indicated that Middle Eastern oil exports had recovered to around their highest levels since the start of the Iran conflict. The development suggested that Iran’s leverage over shipping through the Strait of Hormuz may be diminishing.

WTI crude ultimately fell $3.18, or 3.4%, to settle at $89.26 per barrel. The move below $90 represented a substantial reversal from the elevated levels seen earlier in September and removed some of the inflationary pressure that higher energy prices have recently imposed on financial markets.

Equities derived surprisingly little benefit from the decline in crude, however, as elevated Treasury yields remained a significant counterweight. The persistence of high borrowing costs continued to weigh on market valuations and limited investors’ willingness to broaden risk exposure beyond a relatively narrow collection of outperforming stocks.

The major averages received a late-afternoon boost following remarks from New York Fed President John Williams, a voting member of the FOMC. Williams said there was “no need for urgency” following the Federal Reserve’s September policy action and indicated that policymakers have time to gather additional economic information before determining their next move.

The comments prompted a notable repricing of near-term monetary-policy expectations. According to the CME FedWatch Tool, the implied probability of another rate increase at the October FOMC meeting fell to 49.3%, down sharply from 70.9% on Monday. The shift helped the major averages recover from their session lows, although it was not enough to push them into positive territory.

Semiconductors represented one of the clearest sources of support. The PHLX Semiconductor Index advanced 1.3%, bucking a 0.3% decline in the broader information technology sector and helping contain the Nasdaq’s loss.

Semiconductor- and AI-infrastructure-linked names also provided support elsewhere in the market. Bloom Energy (BE 291.25, +28.38, +10.80%) surged nearly 11%, contributing to the relative strength of industrials (+0.2%), which was one of only four S&P 500 sectors to finish higher.

Artificial intelligence remained in focus during the afternoon as executives from several prominent AI companies attended a White House meeting. Discussions centered on industry self-regulation and cooperation with local communities surrounding data-center development, although the meeting generated little immediate reaction in the equity market.

Utilities (+1.1%) comfortably led the sector standings, rebounding from Monday’s weakness. Communication services (+0.4%) also outperformed, supported by a recovery in Meta Platforms (META 738.96, +23.34, +3.26%). Meta regained some ground after giving back part of its double-digit advance from the previous week during Monday’s session.

Consumer discretionary (+0.1%) rounded out the positive side of the sector ledger, helped by several pronounced company-specific gains. Carvana (CVNA 63.63, +3.16, +5.23%) rallied alongside CarMax (KMX 59.26, +2.72, +4.80%) after CarMax delivered a better-than-expected fiscal second-quarter report.

Cruise-line stocks were another pocket of pronounced strength. Carnival (CCL 25.14, +3.00, +13.53%) surged 13.5% after reporting better-than-expected earnings and record fiscal third-quarter revenue. The broader cruise group also benefited from the sharp decline in crude oil, which provided relief from a significant operating-cost headwind.

Energy (-0.9%) moved in the opposite direction and finished at the bottom of the sector standings as WTI retreated below $90. Consumer staples (-0.5%) was another notable laggard.

Walmart (WMT 106.83, -1.90, -1.75%) weighed on both the staples sector and the price-weighted Dow after Target (TGT 156.45, -1.98, -1.25%) announced permanent price reductions on nearly 2,000 apparel, footwear, accessories, and home products ahead of the holiday shopping season. The announcement raised concerns about increasing pricing pressure across the general-merchandise industry.

Fair Isaac (FICO 616.72, -224.17, -26.66%) suffered the most dramatic decline among S&P 500 components, plunging nearly 27%. The selloff followed an announcement from FHFA Director Bill Pulte that Fannie Mae (FNMA 4.13, -0.27, -6.14%) and Freddie Mac (FMCC 3.81, -0.19, -4.81%) will move toward a single pricing grid incorporating VantageScore alongside the existing FICO Classic model.

The development raised concerns about greater competition in a market where FICO has historically maintained a dominant position. Shares of Fannie Mae and Freddie Mac also declined following the announcement.

Weakness extended beyond the large-cap indexes. The Russell 2000 fell 0.4%, while the S&P MidCap 400 declined 0.1%. Only four of the 11 S&P 500 sectors finished higher, reinforcing the disconnect between the relatively modest losses in the headline averages and the weaker performance across much of the market.

Semiconductor strength, Meta’s rebound, and several company-specific winners helped contain the index-level declines, but broader participation remained limited. That lack of breadth is particularly notable with Treasury yields still elevated, leaving large portions of the market sensitive to further changes in interest-rate expectations.

Attention now turns to a busy slate of economic data on Wednesday morning, headlined by the August Personal Income and Spending report. The headline PCE Price Index is expected to rise 0.4% month over month, while the core PCE Price Index, which excludes food and energy, is expected to increase 0.3%.

With Treasury yields elevated and market breadth continuing to lag, the inflation data will provide another important test for equities. A reading that materially alters expectations for the Federal Reserve’s October decision could have an outsized impact on yields and rate-sensitive stocks, particularly after Tuesday’s comments from Williams sharply reduced expectations for another near-term rate increase.

Our FTinvest 11 model portfolio declined 0.67% to close at 890.10, extending its losing streak to a fourth consecutive session and setting another new low for the current correction. The portfolio has continued to move further below the 900 level and now stands approximately 18.8% below its all-time closing high of 1,096.33, remaining firmly in correction territory.

FTinvest 11 is now down approximately 4.10% year-to-date. Tuesday’s decline extends the persistent weakness seen since late last week, with the portfolio falling from 942.48 on September 23 to 890.10, a decline of roughly 5.6% in four sessions. The latest move leaves FTInvest 11 at its lowest closing level of the current drawdown and further below both its start-of-year level and the 1,000 milestone.