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(Bloomberg) — The S&P 500’s longest weekly winning streak in four decades was stopped on Friday by the same cohort that’s powered the index’s yearlong advance — technology megacaps.
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The Nasdaq 100 Index plunged 3.0% at 12:22 p.m. in New York, putting the tech-heavy gauge on track for its biggest drop since October. Meanwhile, the S&P 500 Index fell 1.6%, with the benchmark all-but-confirmed to miss out on a record 10th-straight week of gains, which would be the longest such stretch since 1985.
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The shift out of technology names, particularly those tied to artificial intelligence, has defined the market over the last few sessions. A confluence of factors, including a weaker-than-expected forecast from Broadcom, has sapped enthusiasm for the technology that has been a driving force behind the bull market in recent years. Four of the 11 S&P 500 sectors advanced, led by consumer staples and healthcare stocks.
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“It’s clearly not sell the market day, it’s the leaders who were pretty extended are coming back,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, who noted that there were a “couple of reasons” to sell including Broadcom Inc.’s earnings. “The excess positioning in those AI names is being unwound today and it’s moving into lesser owned areas of the market like staples, healthcare, utilities.”
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Defensive sectors — consumer staples, healthcare and utilities — gained on Friday, while information technology stocks slid 4%. Meanwhile, UBS Group AG’s basket of AI winners fell 4.8%, the gauge’s biggest drop since October. Super Micro Computer Inc., NuScale Power Corp. and ARM Holdings Plc were among the biggest decliners.
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“Tech stocks got way ahead of themselves and now it’s hard to justify buying these shares at these lofty valuations,” said Jeff Buchbinder, chief equity strategist at LPL Financial.
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Buchbinder said his firm downgraded their position on US tech shares this week from overweight to neutral. The firm added exposure to a mix of defensive and less volatile nooks in the market, including healthcare, utilities and consumer staples.
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“The AI dream isn’t dead. We’re just looking for this incredible run to cool off before adding more exposure to tech shares,” Buchbinder added.
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Jobs and War
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US job growth topped all forecasts and the unemployment rate held steady in May. Data from the payrolls report provides the clearest sign yet that the labor market may be breaking out of a prolonged period of lackluster hiring, even as fears of AI-related job loss persist.
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To Thomas Simons, chief US economist at Jefferies, the data is a “nail in the coffin” for interest-rate cuts this year. Treasury yields climbed after the report was released, and traders fully priced in a quarter-point rate hike by the Fed by December, according to data compiled by Bloomberg.
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