Financials Rise, Tech Slides Before Warsh’s Fed Debut

Investors shifted money into banking and financial stocks and out of technology on Tuesday ahead of Kevin Warsh’s first Federal Reserve policy meeting. The Financial Select Sector SPDR ETF (XLF) rose 1.5% while the Technology Select Sector SPDR ETF (XLK) fell 2.8%.

The Fed left its target range for the federal funds rate at 3.50% to 3.75% as Warsh took office and began a review of central bank operations. Futures markets moved to price in a possible rate increase as soon as September, and nine of 19 Fed policymakers indicated support for a rate hike before year-end.

Major U.S. indexes diverged. The Dow Jones Industrial Average closed at a record 51,999.67, up 0.64%. The S&P 500 slipped 0.57% and the Nasdaq Composite fell 1.15%.

Technology led the declines for the day, with the Philadelphia semiconductor index down 5.7%. Chipmakers and large-cap processors recorded the biggest drops: Monolithic Power Systems slid about 9.3% and Intel fell roughly 8.5% on the session. Over the prior five trading days, some storage-focused firms posted gains: Western Digital rose about 31.6%, SanDisk nearly 21% and Seagate roughly 21.9%.

Financial stocks outperformed during the session. JPMorgan Chase, which represents about 11.5% of XLF, gained roughly 3.7%, and payments processor Fiserv advanced around 4%. Over the previous five trading days, XLF climbed about 3.6%, led by trading and payments-related firms such as Robinhood, which rose about 15.5%, Block, up 9.6%, and Coinbase, up about 8.9%.

Mark Luschini, chief investment strategist at Janney Montgomery Scott, observed: “We had a big move yesterday in the market. We’re just digesting some of those gains and the setup in anticipation of the Fed meeting is always a little tentative.”

Traders reallocated into banking, payments and other financial services while trimming exposure to semiconductors and other rate-sensitive technology segments during the session.