Market Turmoil: Tech Stocks Decline Amid Economic Weakness and Rate Cut Optimism

Market Turmoil Continues as Tech Stocks Decline, Financial Shares Weaken

The stock market saw another day of decline on Thursday as the weeklong slump in megacap technology stocks extended to smaller firms and financial shares. Despite optimism over potential rate cuts, signs of economic weakness overshadowed the market sentiment.

Almost every major group in the S&P 500 fell, with the overall equity benchmark down nearly 1%. The recent rally that pushed the gauge to nearly 40 record highs this year has raised concerns of a pullback or consolidation. This concern has grown as a wide range of companies surged in just a few days, outperforming the tech giants that have led the bull market.

The retreat from megacap stocks comes as investors anticipate the Federal Reserve easing back on its efforts to control inflation. Megacap stocks had been seen as a safe haven during the Fed’s tightening cycle due to their consistent profits and strong balance sheets. However, money has now started flowing into a broader range of industrial and staples firms, which also joined the selloff on Thursday.

Despite signals that the Fed may cut rates, the market’s “rotation” took a pause even after jobless claims indicated a cooling labor market. Investors have been shifting away from crowded megacap leaders towards smaller opportunities, according to Craig Johnson at Piper Sandler.

The S&P 500 dropped to around 5,545, with megacaps showing mixed performance. Nvidia Corp. was up while Apple Inc. was down. The Russell 2000, which recently hit its most-overbought level since 2017, retreated about 2%. The Dow Jones Industrial Average also ended a six-day winning streak.

In corporate news, Netflix Inc. reported adding over 8 million customers in the second quarter but gave a cautious forecast. Broadcom Inc. closed higher on reports of discussions to make an artificial-intelligence chip for OpenAI. Domino’s Pizza Inc. sank after suspending its store growth target, while D.R. Horton Inc. jumped on solid profit margins.

The market turmoil has raised questions about the sustainability of the recent rotation away from megacap stocks. Analysts are closely watching economic data and earnings reports to gauge the market’s direction in the coming weeks. As the Fed embarks on a rate-cutting cycle, the market is likely to see further volatility as investors assess the impact on different sectors.