Major US stock indices closed lower after weaker ISM data, marking the lowest level since May. The Dow industrial average decreased by 61.90 points, or 0.14%, to 44,111.74. The S&P index dropped 30.77 points, or 0.49%, to 6,299.17. The NASDAQ index declined by 137.03 points, or 0.65%, to 20,916.55.
The small-cap Russell 2000 index gained 13.36 points, or 0.60%, reaching 2,225.67. Palantir shares rose by 7.85% after their revenue exceeded $1 billion, surpassing expectations.
Chip Stocks Drop
Chip stocks dropped as President Trump hinted at upcoming tariffs. Broadcom fell by 1.61%, Nvidia decreased by 0.97%, and AMD declined by 1.40%, with its report expected shortly. Super Micro Computers reported earnings and revenue below expectations, with EPS at $0.41 compared to the $0.45 expected and revenues at $5.2 billion against an expected $6.0 billion. Despite guiding higher future revenues, their shares are trading down 12% after-hours.
AMD’s earnings revealed an EPS of $0.54 compared to the expected $0.47, and revenues of $7.69 billion against $7.4 billion expected. Their shares are trading up by approximately 1–2%.
We are seeing the market react to weaker economic signals as today’s ISM data came in at 49.4, its lowest reading since May 2025 and a sign of potential contraction ahead. This softness in the manufacturing sector is likely causing large investors to pull back from risk. The drop in major indices like the S&P 500 and Nasdaq confirms this cautious sentiment.
Market Volatility Expectations
Given these headwinds, we believe market volatility is currently underpriced. The VIX, which tracks expected volatility, closed below 14 today, a level that doesn’t seem to account for the combination of a slowing economy and new political uncertainty. We expect volatility to rise in the coming weeks, making long-volatility plays attractive.
The talk of new tariffs is putting direct pressure on the semiconductor sector, which we saw today with declines in Broadcom and Nvidia. Looking back at the 2018-2019 period, we know that tariff threats create significant and unpredictable swings in these globally-dependent stocks. This makes holding long positions in chipmakers risky without some form of downside protection.
It is very telling that small-cap stocks in the Russell 2000 rose today while large-caps fell. This divergence suggests a potential rotation out of mega-cap tech, which has led the market for years, and into other areas of the market. This could be the start of a new trend where leadership broadens beyond just a few large names.
The after-hours reactions to earnings also give us a clear signal on market sentiment. Super Micro Computer’s 12% drop on an earnings miss, despite strong guidance, shows there is little forgiveness for companies that fall short of expectations right now. In contrast, AMD’s solid beat was met with only a modest 1-2% gain.
Considering this backdrop, we should be looking at strategies that protect against a downturn in large-cap tech, such as buying put spreads on the QQQ. At the same time, the strength in small caps suggests opportunity, and we could explore call options on the IWM to capitalize on that rotation. For individual stocks, especially in tech, using collars to protect existing gains seems prudent.
