Tech stocks extended their decline, casting uncertainty on whether the AI rally has truly stalled or if this was just a hiccup.
While the three main indexes kicked off the day lower, the tech-heavy Nasdaq fell the most at 2.8%. It was its biggest one-day percentage loss since December 2022. The S&P 500 was also down by 1.4%, but the Dow managed to shine, marking another record with a 0.6% gain.
Market strategists are calling this the big rotation out of technology stocks into the broader market, but some have challenged that narrative.
“We are not convinced,” wrote John Higgins, chief market economist at Capital Daily, citing earnings as the big test for the so-called rotation to prove sustainable.
That’s a fair argument. This was Nasdaq’s first down day after three straight days of gains. The index is still just 3.5% from its 2024 closing high. The so-called exodus out of the big tech companies is also not rooted on any fundamental shift. The big tech companies will start reporting earnings at the end of this month–starting July 28–and that’s the time to scrutinize.
The big tech companies will start reporting earnings at the end of this month–starting July 28–and that’s the time to scrutinize.
Investors would want to see the winnings from the massive expenditure into artificial intelligence. If there’s talk on more expenses or negative AI usage trends, it could hurt tech stocks.
But until then, investors who are trimming off their tech exposure are relying partly on the narrative that the enthusiasm on AI has gone too far, which could be anyone’s guess.
There’s also a fear of tighter U.S. regulations on chip sales to China, which really came into the foray Wednesday, after Republican presidential nominee Donald Trump showcased a strong anti-China position in his interview with Bloomberg.
On the bond side, yields declined across the board with the 10-year now sitting at 4.143%.