NEW YORK (Reuters) -Tech stocks led declines on Wall Street, with worries about AI spurring debates about its future. The Nasdaq Composite dropped 2.2% over the last two days, the worst two-day fall since August 1st.
The semiconductor index was down 1.4% , while the information technology sector was the second biggest decliner in the S&P 500, sliding 1% on Wednesday.
Market participants attributed the selloff to a range of factors including a technical pullback after driving much of the stock market’s recovery in the weeks after the April 2nd “Liberation Day.”
Aside from AI concerns, analysts also cited deepening fears of government interference with companies, as the Trump administration looked into taking equity stakes in chip companies such as Intel in exchange for grants under the CHIPS Act.
COMMENTS:
CHRISTOPHER MURPHY, CO-HEAD OF DERIVATIVES STRATEGY, SUSQUEHANNA, PENNSYLVANIA:
“I think it’s more likely this is an overstretched pause than the beginning of a new rotation. The most notable trade midday was a seller of 20k+ Dec 100 puts as SPX rebounded sharply, suggesting investors are taking advantage of the pullback via selling puts rather than signaling a wholesale shift. For now, flows point to taking advantage of the sell-off as opposed to a clear reallocation of capital into new sectors.”
CHRISTOPHER VECCHIO, HEAD OF FUTURES & FOREX, TASTYLIVE, NEW YORK:
“Tech stocks are sliding as investors pare back risk ahead of the Fed’s Jackson Hole meeting, with traders reluctant to chase valuations higher into a Powell speech that will likely fall short of promising a September rate cut.”
“Fresh concerns over the durability of the AI boom, after an MIT study highlighted weak corporate returns and comments from OpenAI’s Sam Altman cited excess buildout in the space, have added to the pressure.”
“If it’s the start of a rotation, it’s less of a ‘growth shifting to value’ or ‘smalls caps over mega caps’ shift and more of a ‘classic defensive’ posturing around economic weakness: bonds, gold, healthcare, and consumer staples are leading the way. If there was a time of the year for a pullback, it’s now: over the past 10- and 20-years, the S&P 500 has averaged losses of -1.7% and -1.2%, respectively, during the August to October window.”
ART HOGAN, MARKET STRATEGIST, B. RILEY WEALTH MANAGEMENT, BOSTON:
“Technology in general is up 40% from its April lows, and the group clearly got ahead of itself. Also, if there’s anything to the market consensus that we’ll see a Fed rate cut, then there will be room for other things to work as well – and there are 493 other stocks in the S&P 500 that are lagging the Mag 7 right now. So I think there’s a bit of a rotation.”
“I don’t know how long it will last, but if it does keep going, well, August and September (are) the weak period seasonally in which it could do so. Also, there are some people who are beginning to question the pace at which we need to be chasing AI capital spending. If you put all this together: when technology stocks take a breather, this is what it looks like. Nvidia and other blue chips in the group are seeing relatively steady drawdowns, but things on the speculative edge are clearly seeing more selling pressure. Palantir has gone from trading at 200 times sales to 150 times its sales, for instance.”
MICHAEL ASHLEY SCHULMAN, CHIEF INVESTMENT OFFICER, RUNNING POINT, EL SEGUNDO, CALIFORNIA:
“Tuesday’ s U.S. technology stock swoon and its continuation today looks like multiple compression meeting a little margin math, but the timing makes it hard to ignore the new elephant in the server room. Names that had been sprinting on AI dreams pulled back hard, with Nvidia, AMD, and Palantir Technologies among the drags.”
“DeepSeek’s update landed on Tuesday represents a serious cocktail of capability and availability and traders well remember the original harsh tech-market pullback DeepSeek caused when it was first broadly recognized in January of this year.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, BROOKFIELD, WISCONSIN:
“When you go from rally to rout, it shows how vulnerable the names were to even a scent of bad news. It could have been (Sam)Altman’s valuation warning and then Meta restructuring its AI division threw fuel on the fire.”
SETH HICKLE, PORTFOLIO MANAGER, MINDSET WEALTH MANAGEMENT, INDIANAPOLIS:
“I think we are starting to see a little bit of rotation. It’s always healthy to see a little bit of a pullback to that way, the markets can kind of get re-oriented.”
“To me, tech was overbought. Maybe it was justified, but it could have been kind of a buy on the rumor, sell it on the news type of thing where we had tech runup into earnings. We had really good earnings, and now it’s kind of natural for the market just to sell some of that good news.”
“I wouldn’t be surprised if we see a little bit of rotation into some smaller cap or into healthcare names, or consumer staples. And to me, that’s kind of a healthy rotation. But honestly, I don’t believe it will be a longer-term trend. It’ll probably be a shorter-term trend. I think we’ll see money flow back into tech in the next couple months.”
PHIL BLANCATO, CHIEF EXECUTIVE OFFICER, LADENBURG THALMANN ASSET MANAGEMENT, NEW YORK:
“It’s much more about profit-taking and temporary rebalancing here. If you get a Federal Reserve cut or a mention of it on Friday, this will reverse pretty quickly, but this is a lot to do with names pushed up to really lofty levels and profit taking across the board.”
STEVE SOSNICK, CHIEF STRATEGIST, INTERACTIVE BROKERS, CONNECTICUT:
“The tech-led selloff that we saw yesterday resumed this morning. That said, dip buyers stepped in around 11am EDT and we’ve now recovered about half our losses. It’s somewhat inevitable to expect them to arrive promptly, though it did take a bit longer than usual.”
“I believe that some of the early declines are related to profit-taking and risk squaring ahead of (Fed Chair Jerome)Powell’s speech on Friday. That is merely rotation and relatively benign, though it gets magnified because of megacap tech stocks’ heavy weighting in key indices. But some of the ferocity of the early drop was related to the President’s calls for Lisa Cook’s resignation.”
“Note that futures broke through their pre-market lows shortly after he posted on Truth Social. Markets were not perturbed that there are inquiries into the propriety of her personal mortgage applications. She gets a presumption of innocence until proven guilty, like any other person. But when the President weighed in even before the process began, then it raised the specter of politicization. That put markets on the wrong foot early, and negative momentum ruled again – at least for a couple of hours.”
ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK:
“To see a little pullback here after a big move up is perfectly normal and healthy. If the selling gets worse then you’ll see a rotation out of tech and into undervalued areas of the market like biotech stocks or healthcare stocks or small cap stocks because those areas have not participated this year.”
(Reporting by Carolina Mandl, Johann Cherian, Laura Matthews, Suzanne McGee, and Gertrude Chavez-Dreyfuss)
