US stocks started Tuesday's trading session with mixed results, as the ongoing sell-off in semiconductor shares weighed on investor sentiment amid a wave of corporate earnings reports. The Dow Jones Industrial Average rose 282.80 points, or 0.54%, to 52,492.88. The S&P 500 declined 17.63 points, or 0.24%, to 7,395.55. The Nasdaq Composite dropped 113.142 points, or 0.45%, to 24,818.94.

The slump in chip stocks originated in Asian markets overnight. South Korea's KOSPI index plunged as much as 11% during Tuesday's session, triggering a circuit breaker, before closing down 732.09 points, or 10.84%, at 6,023.66. This marked its largest single-day percentage drop since March 4. Heavyweights Samsung Electronics and SK Hynix both suffered significant losses. The sell-off then spread to US futures markets, as investors began questioning the sustainability of spending on artificial intelligence infrastructure. The VanEck Semiconductor ETF (SMH) fell 3%, with Micron Technology and Western Digital each dropping 5% to lead the decline. Seagate Technology and Astera Labs also traded lower.

Wall Street had just experienced a volatile trading session on Monday. The Dow gained over 260 points, while the S&P 500 managed a barely positive close. The Nasdaq Composite ended Monday lower, dragged down by the liquidation wave in the semiconductor sector, which pressured the tech-heavy index. The weakness extended to Asian markets overnight, with South Korea's KOSPI index briefly falling 11% and triggering a trading halt. SMH fell 3.3% on Monday, marking its third consecutive day of losses.

The market's nervousness reflects uncertainty ahead of a busy week of earnings reports from major technology companies. Amazon, Meta Platforms, and Microsoft are all scheduled to report results this week. The trajectory of the chip sector hinges on whether hyperscalers—companies like these tech giants—can maintain their capital expenditure, even as they show signs of strain. Apple is also set to release its earnings this week. Investors are closely watching the AI capital spending plans of hyperscalers, including Amazon, Apple, Meta Platforms, and Microsoft.

The Federal Reserve's interest rate decision is due on Wednesday. Investors anticipate the central bank will hold rates steady but will be looking for more clarity on the path of monetary policy. According to the CME FedWatch Tool, federal funds futures pricing shows a probability of a 25-basis-point rate hike in September, while the chance of rates remaining unchanged is around 64%. Market participants will scrutinize the post-meeting statement for wording on inflation and economic growth to find clues about future policy direction.

"Our call is for a hold," said Padhraic Garvey, Regional Head of Research for the Americas at ING, in a Tuesday morning note. "We think inflation expectations are benign enough to be comfortable. Also, the structure of the yield curve does not support a rate hike cycle. Specifically, the 5-year yield is expensive relative to the curve."

"It is unusual for the Fed to start a rate hike cycle when the 5-year yield is expensive relative to the curve. If we are wrong and the Fed does hike (either at this meeting or the next), the curve structure suggests any hike would subsequently be reversed, with the federal funds rate ending up lower than today within a 12-month window."

Traders were also monitoring oil prices closely, as officials from Iran, Saudi Arabia, and Oman held talks to discuss the reopening of the Strait of Hormuz for shipping. Crude oil extended Monday's sharp losses, with Brent crude falling over 2% to $86.39 per barrel, while West Texas Intermediate (WTI) crude declined 1.9% to $81.03 per barrel.