US Stocks Extend Weekly Losses Amid Geopolitical Tensions and Chip Sector Weakness

Published: June 21, 2025 | New York, USA

Wall Street wrapped up a volatile week on a cautious note Friday, with U.S. equities retreating under the weight of escalating geopolitical strains, mounting semiconductor industry concerns, and mixed signals from the Federal Reserve. The tech-heavy Nasdaq 100 Index declined 0.4%, reversing early session gains of up to 0.8%, while the broader S&P 500 Index closed 0.2% lower. Meanwhile, the Cboe Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” hovered near 21, reflecting heightened investor anxiety over global instability and central bank ambiguity.

Canceled U.S.-Japan Talks Add Diplomatic Uncertainty to Market Narrative

Investor sentiment deteriorated sharply after a report from the Financial Times revealed that Japan had canceled high-level security talks with the United States, originally slated for July 1. The abrupt development followed demands from the Trump administration that Japan raise its defense spending to 3.5% of GDP, up from 3%. The diplomatic fallout, which comes just days before a key NATO summit, injected new volatility into already fragile markets and signaled potential realignments in Pacific power dynamics. Equity traders reacted swiftly, viewing the cancellation as a fresh geopolitical wildcard with the capacity to unsettle global risk assets.

Highlights

• Japan scrapped security talks after U.S. defense spending pressure

• Rising diplomatic friction compounds investor caution

• Market views cancellation as a potential Pacific region destabilizer

• Timing overlaps with upcoming NATO summit adds complexity

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Semiconductor Stocks Fall as U.S. Considers Revoking Tech Export Waivers to China

Adding further pressure to equity markets, chipmakers suffered fresh declines after the Wall Street Journal reported that the U.S. Commerce Department may revoke waivers allowing semiconductor firms to export technology to China. The prospect of tighter trade restrictions came as a blow to major chip companies like Nvidia, Taiwan Semiconductor, Lam Research, and KLA, all of which fell in late trading. The Philadelphia Semiconductor Index dropped 0.8%, undermining a sector that has been central to the year’s equity rally. While some analysts noted that such moves could eventually benefit U.S. chipmakers by undercutting foreign rivals, the immediate market reaction was risk-off.

Highlights

• Commerce Department mulls ending chip export waivers to China

• Major U.S. and Asian semiconductor firms decline on trade concerns

• Philadelphia Semiconductor Index posts 0.8% drop

• Export policy volatility reintroduces supply chain risk for tech sector

Fed Governor Waller’s Dovish Tone Offers Limited Respite

Earlier in the session, equities had rallied briefly after Federal Reserve Governor Christopher Waller signaled that rate cuts could begin as early as next month, assuming inflation remains on its current trajectory. Speaking to CNBC, Waller said, “We’ve got room to bring it down,” while cautioning that geopolitical shocks—such as the ongoing Middle East conflict—could stall the easing cycle. Waller’s remarks follow the Fed’s mid-week decision to keep interest rates on hold, while continuing to project two cuts before the end of 2025. However, a growing divergence among policymakers and modest downward revisions to GDP estimates have complicated the rate outlook.

Highlights

• Fed’s Waller suggests July rate cut is on the table

• Comments buoyed markets early but failed to sustain rally

• Fed still projecting two cuts for 2025, but internal divisions widening

• Rate outlook clouded by inflation stickiness and global uncertainty

Middle East Conflict Deepens, Raising Macro and Market Risk Premiums

Geopolitical stress stemming from the Israel-Iran conflict remains a persistent overhang for global markets. President Donald Trump, attending multiple national security briefings this week, said a decision on potential U.S. military involvement would be taken within two weeks, though he emphasized a preference for diplomacy. Iranian President Masoud Pezeshkian, however, hardened his country’s stance on Friday, stating that negotiations are impossible until Israeli aggression ends unconditionally. With hostilities entering their eighth day, investors are reassessing global supply chain risks, particularly for energy and defense-linked sectors, and raising their exposure to traditional safe havens.

Highlights

• U.S. mulls role in ongoing Israel-Iran confrontation

• Iran reiterates refusal to negotiate under current military conditions

• Market anxiety persists over energy prices and defense escalation

• Global uncertainty driving VIX near 21 as safe-haven interest rises

Economic Fundamentals: Consumer Spending Resilience Offers a Counterweight

Despite mounting geopolitical headwinds, consumer resilience remained evident in select sectors. Kroger Co. shares advanced after reporting sales figures that exceeded Wall Street expectations, indicating that essential goods spending remains stable even amid broader market jitters. In contrast, Accenture plc declined, with analysts citing weakness in forward bookings despite healthy top-line metrics. These divergent performances underscore a market environment driven by stock-specific fundamentals, with investors increasingly favoring defensive, value-oriented names in sectors like consumer staples, healthcare, and utilities over high-beta tech and cyclicals.

Highlights

• Kroger’s upbeat sales results signal steady consumer demand

• Accenture shares slip on disappointing future bookings guidance

• Market favors defensive sectors amid macro turbulence

• Stock selection growing more critical in current trading environment

Broader Market Signals Suggest Elevated Risk Aversion into Q3

With Friday’s declines, major U.S. indexes have now recorded a second consecutive weekly drop, breaking a summer rally that had propelled equities to fresh highs earlier in June. Investors now face a confluence of macroeconomic crosswinds: a Fed still undecided on timing its pivot, mounting global trade tensions, and rapidly evolving geopolitical threats. While the selloff has been measured, strategists warn that equity rallies may struggle for traction in the absence of clear catalysts or geopolitical de-escalation. “There’s just too much smoke for investors to stay fully allocated to risk,” one fund manager said, hinting at a possible rebalancing trend heading into the third quarter.

Highlights

• Weekly losses signal fragile equity momentum in H2 2025

• Geopolitics, Fed ambiguity, and trade policy cloud asset visibility

• Institutional investors may reduce risk exposure into Q3

• Defensive positioning likely to remain dominant in near term