Rotation Pressure Deepens as Tech Slide Continues

Markets were mixed Wednesday as tech stocks saw another steep selloff, led by software and semiconductor names. The Nasdaq 100 posted its worst two-day decline since October, dragged lower by weakness in the “Magnificent Seven” and a sharp drop in Advanced Micro Devices. However, a broader rotation into cyclicals, small caps, and value names helped cushion losses in the S&P 500 and lift the Dow. Bitcoin fell sharply, while bond yields edged higher and crude prices climbed on geopolitical uncertainty.

Key Headlines & Market Movers:

• Tech Rout Deepens Amid AI Concerns and Valuation Repricing: Another wave of selling hit software and chip stocks as fears of AI-driven disruption and valuation compression rattled investors. AMD dropped 17% despite beating earnings estimates, while the software sector slid again as funds exited momentum-heavy trades. The Nasdaq 100 breached its 100-day moving average, a technical level some see as a warning of further weakness. Short sellers have profited handsomely in the space, with AI anxiety driving indiscriminate selling, even among firms posting solid growth.

Rotation to Value and Small Caps Gains Momentum: While tech dragged on major indexes, a rotation into value, cyclicals, and equal-weighted strategies gained traction. The equal-weight S&P 500 rose 0.9%, reflecting strength outside megacaps. This shift signals increasing investor confidence in economic growth, supported by resilient service-sector data and firm earnings guidance. However, the violent unwind in momentum and high-beta strategies points to ongoing volatility beneath the surface.

• Earnings Season Sparks Divergence: Earnings results produced sharp moves across sectors. While AMD and Uber sank post-report, Enphase Energy jumped 36% and Eli Lilly surged 9% back above a $1T market cap. Silicon Labs soared 50% after a $7.5B buyout by Texas Instruments, which itself fell 2%. Alphabet and Amazon earnings are in focus, with markets watching for signs that tech bellwethers can re-anchor sentiment.

Bitcoin Slips; Commodities Mixed: Bitcoin fell below $73,000 and is testing key levels amid broader risk-off sentiment. Gold stayed under $5,000 despite intraday gains, while crude oil rose as mixed messages from U.S.-Iran nuclear talks added to supply uncertainty. Treasury yields ticked up slightly, with the 10-year finishing near 4.28%.

S&P 500 Sector Performance

Looking Ahead

The rotation out of megacap tech continues to reshape market leadership, but improving macro data and solid earnings trends suggest underlying strength. Investors will closely watch upcoming results from Alphabet and Amazon, as well as the broader tone of tech earnings in the days ahead. While software stocks look oversold in the near term, long-term upside may be capped if valuation multiples are re-rated lower. Diversification remains key, with consumer, financials, and healthcare sectors gaining favor as the rally broadens.

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