The Nasdaq 100 extended its June slide to 1% on Thursday, deepening a selloff that has wiped nearly $3 trillion from the Magnificent Seven as rising chip costs and hawkish Fed signals drove a rotation out of technology stocks.
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Nasdaq 100 drops 1% as tech rout deepens on rate, chip fears
The Nasdaq 100 fell 1% on June 25, extending a June selloff that has erased nearly $3 trillion from the Magnificent Seven as rising memory chip costs and hotter inflation data fueled a rotation out of technology.
"Apple proved to be a bit of a downer because it sharpened the distinction between the chip companies whose earnings and margins have been benefitting from high demand and their ability to pass along price increases, and the fact that their customers can't bear those costs indefinitely," said Steve Sosnick, chief strategist at Interactive Brokers.
The S&P 500 was flat. The Dow rose 72 points, or 0.1%, to 52,060, failing to close above 52,000 for the fourth time. Apple slid nearly 5% after hiking iPad and MacBook prices to counter surging memory chip costs. Nvidia, Microsoft and Alphabet fell between 1.2% and 2.7%. The Philadelphia SE Semiconductor index rose 2.5% and was on track for its strongest quarter on record, with Micron Technology soaring 14% after earnings and Sandisk jumping 16.3%.
The rotation out of tech into industrials, health care and materials reflects growing concern that hyperscaler capital spending on AI infrastructure may not generate sufficient returns, especially as the Federal Reserve signals it could raise rates this year. The PCE price index rose 4.1% in May, the highest since April 2023, pushing traders to price in at least one 25-basis-point rate hike before year-end.
Sector Rotation Accelerates
Six of 11 S&P 500 sectors moved higher. The industrial sector led with a 2% gain, followed by health care, which added 2%. Caterpillar rose 4%, and Goldman Sachs gained 1.2%, lifting the Dow to an intraday high above 52,000. On the losing side, the technology sector dipped 0.3%, while software shares came under pressure, with Atlassian and Applovin dropping more than 4% each. Advancing issues outnumbered decliners by a 1.76-to-1 ratio on the NYSE.
Inflation Data Hardens Hawkish Fed Bets
The PCE price index rose 4.1% in May from a year earlier, up from 3.8% in April and breaking above 4% for the first time in three years. Core PCE climbed 3.4%. Consumer spending rose 0.7% in May, above forecasts, while first-quarter GDP was revised up to 2.1% from 1.6%. Traders now anticipate the Fed to lift interest rates by at least 25 basis points before year-end, according to LSEG data. The U.S. 10-year Treasury yield rose, while the dollar strengthened, adding pressure on risk assets.
The selloff in tech reverberated across markets. Bitcoin fell to about $58,000, its lowest level since September 2024, before recovering to around $59,200, down 2.6% on the day. More than $450 million in leveraged long positions were liquidated within roughly an hour.
This article is for informational purposes only and does not constitute investment advice.
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