Tech Tumbles as AI Trade Loses Steam

Markets took a sharp turn lower Wednesday, led by a renewed selloff in mega-cap tech and AI-related stocks. Skepticism around high valuations and slowing AI monetization pressured the Nasdaq and S&P 500, with both indexes logging their fourth straight day of losses. Tech weakness spilled into broader sectors, though the equal-weighted S&P 500 held up better, signaling early-stage rotation beneath the surface. Despite dovish Fed commentary and stabilizing bond yields, investors are questioning whether AI can continue to justify its outsized market leadership.

Key Headlines & Market Movers:

• AI Fatigue Hits Tech Stocks: The market’s most crowded trade, AI infrastructure, showed further cracks as Nvidia, Oracle, and other high-fliers saw renewed selling. The UBS US AI Winners Index dropped 3.3%, and Nvidia fell nearly 4%. A report that Blue Owl Capital would not co-finance Oracle’s Michigan data center project amplified investor concern that AI spending is outpacing returns. Strategists noted a growing realization that monetization is lagging behind massive capex, with rotation toward earnings-visibility sectors underway.

Technical Breakdown Fuels Volatility: The S&P 500 fell through its 50-day moving average, triggering algorithmic selling and accelerating declines. The Nasdaq 100 slid nearly 2%, while the equal-weighted S&P 500 fell just 0.3%, reinforcing the notion that a rotation, not a full correction, is underway. Small caps continue to outperform since the November bottom, with the Russell 2000 up 8.5% over that period. The rotation theme is gaining traction as investors reassess risk ahead of year-end.

Fed Signals Room to Cut, but No Rush: Fed Governor Waller hinted that rates are above neutral and signaled openness to further cuts, though he emphasized there's no urgency due to sticky inflation. Markets saw his tone as dovish, helping bonds stabilize and yields remain flat despite equity losses. Waller, seen as a market-favored candidate for next Fed Chair, is reportedly set to interview with President Trump. Rate markets are still pricing two cuts in 2026, more than the Fed’s median projection.

AI Restructuring and Consolidation Drive Headlines: Several corporate developments reinforced the changing AI narrative. Amazon is consolidating AI teams and in talks to invest $10B+ in OpenAI, leveraging its own chips. Google is rolling out more efficient versions of its Gemini AI model. Meanwhile, Tesla, Broadcom, and Oracle saw steep declines, reflecting both AI fatigue and growing scrutiny of capital-heavy strategies. Strategists increasingly recommend diversification into the application layer of AI, with lower P/E multiples and clearer ROI.

S&P 500 Sector Performance

Looking Ahead

With only a few trading days left in the year, markets are entering a potentially volatile stretch. A muted response is expected from Thursday’s CPI print, as data collection disruptions have weakened reliability. Investors appear more focused on the shifting market leadership, potential AI repricing, and rotation into sectors with stronger earnings visibility. The underlying AI growth narrative remains intact, but expectations are resetting. For now, leadership is broadening, not collapsing, offering opportunities in overlooked segments such as energy, consumer staples, and health care.

Disclaimer

Duncan Williams Asset Management is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Duncan Williams Asset Management by the SEC nor does it indicate that Duncan Williams Asset Management has attained a particular level of skill or ability.

This material prepared by Duncan Williams Asset Management is for informational purposes only and is accurate as of the date it was prepared.  It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Past performance is not indicative of future results. Investing involves risks, including the risk of loss of principal. Before making any investment decision, investors should consult with their financial advisor, consider their individual financial circumstances, and carefully review all relevant information and risk factors. Duncan Williams Asset Management assumes no responsibility for errors or omissions, nor does it accept liability for any loss arising from reliance on this information.

Advisory services are only offered to clients or prospective clients where Duncan Williams Asset Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Duncan Williams Asset Management unless a client service agreement is in place.

This material is not intended to serve as personalized tax, legal and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Duncan Williams Asset Management is not a legal or accounting firm. Please consult with your legal or tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.

‍