The S&P 500's longest weekly winning streak in four decades came to an end on Friday, driven by the same technology megacaps that had fueled the index's yearlong advance. The Nasdaq 100 Index plunged 3% as of 12:22 p.m. in New York, putting the tech-heavy gauge on track for its biggest drop since October. Meanwhile, the S&P 500 Index fell 1.6%, all but confirming the benchmark would miss out on a record 10th consecutive week of gains, which would have been the longest such stretch since 1985.
In Toronto, the S&P/TSX Composite Index was down more than 600 points, trading at 34,617.06 as of 1:53 p.m. The decline in Canadian markets mirrored the broader trend as investors moved away from technology shares.
Rotation Out of Technology Stocks
The shift out of technology names, particularly those tied to artificial intelligence, has defined the market over the last several sessions. A confluence of factors, including a weaker-than-expected forecast from Broadcom Inc., has dampened enthusiasm for the technology that has been a driving force behind the bull market in recent years. Four of the 11 S&P 500 sectors advanced, led by consumer staples and healthcare stocks.
“It’s clearly not a sell-the-market day; it’s the leaders who were pretty extended are coming back,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. He noted that there were a “couple of reasons” to sell, including Broadcom’s earnings. “The excess positioning in those AI names is being unwound today and it’s moving into lesser-owned areas of the market like staples, healthcare, utilities.”
Defensive Sectors Gain
Defensive sectors — consumer staples, healthcare, and utilities — gained on Friday, while information technology stocks slid 4%. Meanwhile, UBS Group AG’s basket of AI winners fell 4.8%, the gauge’s biggest drop since October. Super Micro Computer Inc., NuScale Power Corp., and ARM Holdings Plc were among the biggest decliners.
“Tech stocks got way ahead of themselves and now it’s hard to justify buying these shares at these lofty valuations,” said Jeff Buchbinder, chief equity strategist at LPL Financial.
Buchbinder said his firm downgraded their position on U.S. tech shares this week from overweight to neutral. The firm added exposure to a mix of defensive and less volatile nooks in the market, including healthcare, utilities, and consumer staples.
“The AI dream isn’t dead. We’re just looking for this incredible run to cool off before adding more exposure to tech shares,” Buchbinder added.
Jobs Data and Rate Hike Expectations
U.S. job growth topped all forecasts and the unemployment rate held steady in May. Data from the payrolls report provides the clearest sign yet that the labor market may be breaking out of a prolonged period of lackluster hiring, even as fears of AI-related job loss persist.
To Thomas Simons, chief U.S. economist at Jefferies, the data is a “nail in the coffin” for interest-rate cuts this year. Treasury yields climbed after the report was released, and traders fully priced in a quarter-point rate hike by the Federal Reserve by December, according to data compiled by Bloomberg.
