Tech sell-off raises broader market risk as investors rotate into other sectors

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Tech sell-off raises market risk

Highlights

iShares Semiconductor ETF (SOXX) fell over 23% in the past month, with Intel and Cerebras Systems down nearly 50%, leading tech declines.
Dow Jones Industrial Average surged 1,500 points Wednesday and is up 4.1% monthly, while the S&P 500 tech sector's 37% weighting is amplifying damage from tech losses.
Goldman Sachs warns that Democrats' legislative control could increase costs and slowdowns for tech, escalating sector volatility amid compressed valuations and ongoing selling.

AI-linked declines deepen rotation concerns

As reported by CNBC, the recent retreat in artificial intelligence-linked stocks is intensifying concern that weakness in technology could spill over into the broader market. The iShares Semiconductor ETF, or SOXX, has fallen more than 23% over the past month as investors worry that companies tied to AI are taking on too much borrowing to fund capital spending plans.

Intel and Cerebras Systems are down nearly 50% in the same period, making them the weakest performers in the semiconductor fund. Barclays strategist Venu Krishna wrote that doubts about the durability of the AI infrastructure supercycle recently triggered a sharp sell-off in technology and other stocks linked to the AI theme, pushing investors toward areas with limited AI exposure.

That pattern remains visible on Thursday. Dow futures rise 300 points after the 30-stock average posted a 1,500-point rally on Wednesday, while Nasdaq-100 futures fall 1% as neocloud stocks including CoreWeave and Nebius decline. Qualcomm shares also drop 12% after the chipmaker issues weaker-than-expected guidance.

Concentration leaves indexes exposed

Outside AI, the market is still showing resilience. The Dow Jones Industrial Average, which has less exposure to the technology than the S&P 500 or Nasdaq-100, is up 4.1% over the past month, while the equal-weighted S&P 500 has gained more than 5%.

Under normal conditions, that kind of sector rotation would support the market. But with the S&P 500 technology sector accounting for 37% of the benchmark's total market capitalization, losses in tech are proving damaging at the index level.

Goldman Sachs traders also signal that Democrats sweeping control of the House and Senate in this week's midterm elections could keep pressure on technology stocks. They say legislative restrictions are hard to quantify, but could make building more expensive, complicated and slower, while valuations have already compressed sharply and another heavy wave of selling has followed.

BTIG chief market technician Jonathan Krinsky says the SOXX has now closed below its 200-day moving average for four straight sessions. He says there are still tactical opportunities on both the long and short side, but adds that factor volatility is unlikely to fade quietly and that broad market risk has not been eliminated.

Our earlier analysis of the Nasdaq-100 (NDX) noted that the index was under short- and medium-term selling pressure, trading below key moving averages while remaining above its long-term trend. We also covered the launch of JQQQ, a blockchain-native fund from Janus Henderson and Centrifuge designed to expand digital access to Nasdaq-100 exposure, even as concentration in index leadership and skepticism around AI-linked capital spending kept downside risks elevated.

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