Dow slides 450 points as Fed decision, chip selloff weigh

US stocks opened sharply lower Wednesday as the Federal Reserve's two-day policy meeting concluded and a deepening selloff in semiconductor shares extended losses from the prior session.

The Dow Jones Industrial Average fell more than 450 points at the open Wednesday as investors awaited the Federal Reserve's interest-rate decision and chip stocks extended their slide.

"Following several years of strong growth and upward revisions, good results are no longer enough to move the needle in tech so far this quarter," Bank of America analysts wrote in a note, pointing to growing unease around the sustainability of AI spending.

The selloff was broad-based, with nine of 11 S&P 500 sectors in the red. Information technology led declines, falling more than 2%, as semiconductor stocks extended a punishing stretch. The Philadelphia Semiconductor Index dropped 4%, while the Roundhill Memory ETF sank 8%. Shares of memory-chip makers SK Hynix, Sandisk and Micron Technology fell between 7.5% and 14%, adding to losses from the prior session when the group dragged the Nasdaq lower.

The Fed's decision, due at 2 p.m. Washington time, carries outsized significance given Chair Kevin Warsh's deliberately opaque communication style. Traders see a 31% chance of a quarter-point rate hike, according to CME Group's FedWatch tool, though most economists expect the central bank to hold rates steady at 3.50% to 3.75%. A surprise move in either direction could set the tone for equity markets through the remainder of the summer.

Chip Rout Deepens as AI Spending Scrutiny Intensifies

The semiconductor selloff accelerated as investors questioned whether massive capital expenditure by big tech companies on artificial intelligence infrastructure would generate sufficient returns. Fitch Ratings warned Monday that an AI-related market correction could pose a "major credit risk," citing "the combination of revenue uncertainty and the extent to which capital markets and economies have become intertwined with AI." Bank of America's latest fund manager survey found close to half of respondents identified AI spending by America's biggest tech giants as the most likely source of a systemic credit event.

Consumer Stocks Split as P&G Miss Clouds Outlook

Procter & Gamble dragged the consumer staples sector lower after the household products giant missed quarterly revenue expectations, signaling softening consumer demand. The stock's decline added to pressure on the Dow, which also faced headwinds from weakness in industrials. The S&P 500 Consumer Staples sector, which had been the best performer Tuesday with a 4.1% gain after Coca-Cola's strong results, reversed course as investors reassessed the consumer outlook.

Oil prices edged higher Wednesday as renewed hostilities between the US and Iran threatened supply routes, reversing some of Tuesday's decline when West Texas Intermediate crude fell 4.3% to about $79 a barrel. The 10-year Treasury yield hovered near 4.60%, while the US dollar index was little changed at 101.38. Gold futures traded near $4,025 an ounce. The Cboe Volatility Index climbed above 18, reflecting heightened anxiety ahead of the Fed decision, with declining stocks outnumbering advancing ones by roughly 3-to-1 on the New York Stock Exchange.

This article is for informational purposes only and does not constitute investment advice.