In a slight pullback from record highs, US stocks experienced a decline on Wednesday, largely driven by concerns in the technology sector. Worries surrounding US export restrictions on China and potential changes in policy towards Taiwan weighed heavily on tech stocks. The Dow Jones Industrial Average (^DJI) dipped approximately 0.1%, while the S&P 500 (^GSPC) fell nearly 1%. The tech-heavy Nasdaq Composite (^IXIC) suffered the most significant decline, dropping over 1.6%.

The retreat in stock prices is largely attributed to concerns over potential risks to tech companies, overshadowing the optimism surrounding anticipated interest-rate cuts that have been fueling recent market rallies. This unease particularly impacted heavyweight tech players whose artificial intelligence-driven gains have been instrumental in propelling the S&P 500 to fresh record highs this year. Significant tech companies such as Nvidia (NVDA) faced the brunt of the decline, with their shares falling by nearly 4% during early trading.

Adding to these concerns, the Biden administration reportedly indicated to allies its intentions to impose more stringent restrictions on companies continuing to provide China with advanced chip technology, despite existing export curbs. This news had an adverse effect on shares of ASML (ASML, ASML.AS), a Dutch chip gear maker believed to be a potential target, as its stock price plummeted by over 8% following solid quarterly earnings.

In a Bloomberg interview, Republican nominee Donald Trump also raised questions about the extent of US defense support for Taiwan, suggesting that the island claimed by China should bear the cost of US protection. These statements created further unease among investors, notably impacting chipmaker TSMC (TSM, 2330.TW), whose shares fell by more than 6%. As a result, Taiwan's stock market experienced a significant decline, erasing close to $30 billion in market value.

Venturing into a different sector, new residential construction in the US saw an upswing in June, driven by a focus on expanding multifamily projects. Data from the Census Bureau revealed that housing starts rose by 3%, reaching a seasonally adjusted annual pace of 1.35 million units. The increase was primarily attributed to growth in multifamily construction, with new construction of five or more units climbing to a seasonally adjusted annual pace of 360,000 units, up from 295,000 the previous month.

However, while the rise in housing starts and building permits appears positive on the surface, economists at Capital Economics caution that it is primarily driven by gains in the volatile multi-family sector, which may prove temporary. Single-family starts and permits, on the other hand, experienced a decline of 2.2% and 2.3%, respectively. This marked the fifth consecutive monthly drop in single-family permits, indicating further weakness in the near future.

The decline in single-family permits suggests that homebuilders may be hesitant to commence new projects due to an oversupply of new homes for sale. Currently, there is a 9.3-month supply of homes at the current sales rate, the highest since November 2022. Given this backdrop, homebuilder stocks lost momentum on Wednesday following the release of the government's fresh data. The SPDR S&P Homebuilders ETF (XHB) saw a decline of 0.66%, while major homebuilders D.R. Horton, Inc. (DHI), Lennar (LEN), and Toll Brothers (TOL) experienced declines of 0.6%, 0.6%, and 0.5% respectively, during morning trading.

Overall, as fears surrounding US export curbs on China and potential shifts in policy towards Taiwan intensify, along with concerns over the tech sector's growth prospects and the housing market's vulnerability, US stocks experienced a mild retreat from their recent highs.