The S&P 500 and the Nasdaq posted their worst single-day performance since July as threats to equities came from multiple directions. For a long time, indices rose because confidence in tech companies outweighed concerns about high inflation and the Fed's tightening bias. However, mass sell-offs in chip stocks and an acceleration in consumer prices have stripped the market of balance. How long will this descent last?
Competition from Chinese chip makers and Broadcom's warning that AI investments "look like going to a casino" triggered a wave of tech selling. The avalanche engulfed the sector, dragging information technology stocks down about 2.6%. The S&P 500 fell by nearly 2%, ending the longest streak without a 1%+ drop since 2000. Quant funds joined the selling, and the snowball became large enough to spur a flight to safe havens. Treasury yields declined, impacting the US dollar.
S&P 500 and Russell 2000 dynamics
On the surface, it's not all doom. The S&P 500 sits only about 1.3% below its all-time high and is up roughly 14% year-to-date, significantly outperforming the Russell 2000, which is down about 11% from recent peaks and has entered correction territory. Small caps had outpaced the broad market on confidence in the US economy and expectations that the Fed would hold policy steady. After September's interest rate hike, that story changed. It's therefore unsurprising that headline CPI accelerating to 3.7% and core inflation to 2.6% prompted accelerated liquidation of Russell 2000 exposure.
Winners were companies that embed AI as an adjunct tool but retain stable revenue streams outside the AI theme. Apple is a case in point: its shares rose even as the rest of the market turned red. The iPhone maker's market cap topped $5 trillion, a strong relative showing versus an average 1.7% drop across the rest of the Magnificent Seven.
Apple and NVIDIA dynamics
Falling Treasury yields could soften the S&P 500's peak?to?trough move. Investor appetite for equities hasn't evaporated: US equity-focused funds recorded inflows for a 13th consecutive month in October, the longest streak since records began in 2000. The open question is whether the sell-off in big tech will continue.
Technically, the daily S&P 500 chart showed a break of fair value and the formation of a 1?2?3 reversal pattern, which presented short-term long opportunities. While the price remains below 7,730, the bias favors selling.