Nasdaq 100 Falls 1.5% as AI Winners Lead Tech Rout: Markets Wrap

(Bloomberg) — A renewed slide in big tech weighed on stocks amid growing skepticism about the artificial-intelligence trade. Bonds moved away from session lows as Federal Reserve Governor Christopher Waller signaled support for rate cuts ahead of US inflation data.

Despite the bounce in Treasuries, equities came under pressure as Nvidia Corp. and Alphabet Inc. led megacaps lower. Losses accelerated as the S&P 500 broke below a key technical level — even though most of its shares rose. The Nasdaq 100 lost about 1.5%. Micron Technology Inc. will report earnings after the close.

For years, investing in big techs has been a no brainer, given their stalwart balance sheets and fat profits. Now, there’s concern over whether the sector — which has soared since the bull market began — can keep justifying its lofty valuations and ambitious spending on AI.

“The recovery from the November lows in the tech-heavy Nasdaq 100 has begun to lose momentum as disappointing earnings from Broadcom and Oracle last week dampened AI enthusiasm,” said Adam Turnquist at LPL Financial. “Additionally, rotation pressure out of tech has accelerated, with positioning data showing rising demand for smaller-cap and value stocks.

At Miller Tabak, Matt Maley notes that this is the last full week of trading for the year, so we could see some “fireworks” over the next few days.

“As much as investors want to focus on other groups, the tech sector is still going to determine what happens over the next two weeks,” he said. “Given their weighting in the S&P 500 and the Nasdaq 100, there is just no way around it.”

The S&P 500 fell to around 6,740, breaching the average price of the past 50 days. Its equal-weighted version – which gives Dollar Tree Inc. as much clout as Apple Inc. – was little changed in a sign of rotation from tech to other industries.

The yield on 10-year Treasuries advanced one basis point to 4.16%. The dollar rose 0.2%. Oil climbed as geopolitical risks mount from Russia to Venezuela.

As the year draws to a close, a clearer narrative has emerged in recent weeks: the mega-cap technology stocks that have powered this bull run may be losing their ability to carry the market on their own, according to Fawad Razaqzada at Forex.com.

“Confidence in the sector is being challenged, particularly over whether stretched valuations and heavy spending on artificial intelligence can still be justified,” he said.

If we see renewed strength in tech names, Razaqzada noted, then this could be the catalyst to drive markets to new highs.

“You want sectors that have been leading all year to at least hold up while other sectors play catch up,” he concluded.

The stock market is in a classic rotation period, not a correction, and the long overdue rotation, where investors are moving money out of overvalued tech stocks, is in its early innings, according to David Bahnsen at The Bahnsen Group.

“While grotesque valuations in big tech stocks can get even more grotesque and the party can continue for some time, we believe the safer route is to lean into this current rotation by increasing exposure to the energy, consumer staples and health care sectors,” he said.

To Bahnsen, momentum can carry things a long way past fundamentals, as history has made clear.

“It does appear there is now real market fatigue in this singular AI infrastructure story, and the circularity issue in revenue, the rationalization of capex, and the fact that not all players can win at once, is seemingly becoming more accepted by markets,” he concluded.

“We don’t think the AI rally is dead yet, and expect it to last through 2026,” said John Higgins at Capital Economics. “That view underpins our forecasts for strong gains in those equity markets most exposed to it, particularly the US and some of those in Asia.”

Higgins also noted that other equity markets, and “risky” assets more broadly, might have less to gain, though. And he doesn’t think the good times for tech will last forever, and suspects valuations will eventually become sufficiently stretched that a correction is likely.

“Our base case, though, is that that won’t happen until 2027,” he said.

With the consumer price index running the risk of being less reliable than usual due to government-shutdown disruptions, Waller’s remarks were closely watched for fresh Fed insights. While investors saw his comments as more dovish, the official also warned there’s no need to rush amid elevated inflation.

The November CPI report on Thursday will offer only a partial snapshot of inflation, without monthly changes for most of the price categories. Much of the October price information was unable to be collected and November data gathering was also delayed by the government closure.

That explains the relative sense of apathy regarding the data, with options traders betting the S&P 500 will swing 0.7% in either direction, according to data compiled by Barclays Plc. That’s sharply lower than the 1% average realized move spurred by the 12 reports delivered through September.

Earlier this week, the high-profile jobs report also drew limited reaction. The data was impacted by the federal shutdown and proved to be a noisy reading showing the labor-market is slowing, but not collapsing.

“The muted response to the employment data is likely to be repeated – after all, the data quality concerns with payrolls are also applicable to CPI,” said Ian Lyngen at BMO Capital Markets. “At least insofar as there will be a reasonable amount of skepticism regardless of how the data ultimately comes in.”

Outlining a scenario where inflation continues to slow through 2026, Waller said in a CNBC forum that monetary policy settings are up to 100 basis points above neutral — the level where the Fed is neither restraining growth nor stoking price pressures.

Waller, who is under consideration to be the next Fed chair, is expected to meet for an interview with President Donald Trump later Wednesday.

Waller’s shot for the Fed chair job improved this week, alongside that of Kevin Warsh, as doubts emerged over frontrunner Kevin Hassett, according to Elias Haddad at Brown Brothers Harriman & Co.

“From a market perspective, Waller is the top pick, as he is a known quantity inside and outside the Fed, he has credibility and knows how to build consensus,” said Chris Low at FHN Financial.

The Fed lowered rates for a third straight meeting last week to support what Chair Jerome Powell called a “gradually cooling” labor market with “significant” risks of a further slowdown.

However, Fed officials are split over whether more cuts are needed next year. The median Fed official penciled in just one reduction in 2026, according to rate projections released alongside the decision, but some policymakers see no further cuts. Traders, meanwhile, have been counting on two.

Corporate Highlights:

OpenAI is in initial discussions to raise at least $10 billion from Amazon.com Inc. and use its chips, a potential win for the online retailer’s effort to broaden its AI industry presence and compete with Nvidia Corp. Alphabet Inc.’s Google is rolling out a more efficient and affordable version of its most powerful artificial intelligence model across its products, building on the company’s momentum after the successful launch of Gemini 3. Oracle Corp. said final negotiations on an equity deal for a data center project in Michigan are “on schedule” and doesn’t include Blue Owl Capital, a firm that has helped finance massive data center projects for firms including Oracle and Meta Platforms Inc. in recent months. Warner Bros. Discovery Inc., the parent of HBO and CNN, is advising its shareholders to reject a hostile takeover bid by Paramount Skydance Corp. in favor of its original agreement with streaming giant Netflix Inc., deeming the Paramount offer “inferior” and “inadequate.” Ford Motor Co. canceled a 9.6 trillion won ($6.5 billion) battery agreement with LG Energy Solution Ltd. after the US automaker rolled back its electric vehicle ambitions. General Mills Inc.’s sales in the latest quarter exceeded Wall Street expectations as a strategy to improve packaging and marketing while also lowering some prices paid off. The chief executive of General Mills said more North American consumers are buying food when it goes on sale, the latest signal that households are feeling pinched by the economy. Builder Lennar Corp.’s forecast for quarterly home orders missed analysts’ estimates as affordability pressures and the weakening job market pushes buyers to the sidelines. SpaceX has told its employees the company is entering a regulatory quiet period, people familiar with the matter said, taking the rocket and satellite maker a step closer to an initial public offering slated for 2026. Air taxi maker Joby Aviation Inc. said it plans to double its US manufacturing capacity to as many as four aircraft per month by 2027, using both its main production site in California and another in Ohio. Bankrupt Spirit Aviation Holdings Inc. is in revived discussions to merge with Frontier Group Holdings, people familiar with the matter said, in a deal that could rescue the deep-discount airline from insolvency at a time of stiff competition from larger US carriers. US prosecutors charged the founder of bankrupt subprime auto lender Tricolor Holdings with conspiring to defraud lenders and investors, in a sweeping indictment of the leadership of a used car dealer and financing company that collapsed in a wave of scandal in September. BBVA SA is weighing a series of large share buybacks as it seeks to return capital to investors following its failed bid for Banco Sabadell SA. Julius Baer Group Ltd. is telling some clients with lower balances at the bank to increase the amount of funds they invest with the wealth manager or go elsewhere, according to people familiar with the matter. Continental AG appointed Christian Kötz to lead the German tire maker as it prepares to sell its ContiTech industrial unit, the final step in its breakup plan. Mercedes-Benz Group AG unveiled a sweeping management overhaul that includes the departure of longtime design chief Gorden Wagener, underscoring Chief Executive Officer Ola Källenius’ tightening control as the automaker heads into a make-or-break 2026. Diageo Plc agreed to sell its majority stake in East African Breweries Ltd. to Japan’s Asahi Group Holdings Ltd. in a $2.3 billion deal as the struggling UK distiller streamlines operations to speed its turnaround. TotalEnergies SE Chief Executive Officer Patrick Pouyanne said rising demand for oil will help to underpin prices, despite their recent slump on growing concerns about a global surplus. Doncasters Group, an almost 250-year-old UK metal engineering group that supplies Boeing Co., has selected banks for a US initial public offering that could value the firm at more than $4 billion, according to people familiar with the matter. KNDS NV’s board has decided to pursue an initial public offering for the Franco-German tankmaker amid surging demand for defense stocks and potential interest from rival Rheinmetall AG. China Vanke Co., once the nation’s biggest homebuilder, lurched closer toward what would be one of the country’s largest-ever debt restructurings. Tencent Holdings Ltd. has appointed Yao Shunyu as its chief AI scientist, entrusting the former OpenAI researcher with heading up its artificial intelligence efforts. Shares of HashKey Holdings Ltd., operator of Hong Kong’s largest licensed cryptocurrency exchange, fell on their trading debut after an initial public offering that raised HK$1.6 billion ($206 million). MetaX Integrated Circuits Shanghai Co. soared in its first day of trading on Wednesday, the latest outsized debut by a Chinese chipmaker after similar gains by Moore Threads Technology Co. earlier this month. Some of the main moves in markets:

Stocks

The S&P 500 fell 0.8% as of 11:53 a.m. New York time The Nasdaq 100 fell 1.4% The Dow Jones Industrial Average fell 0.2% The Stoxx Europe 600 was little changed The MSCI World Index fell 0.7% Bloomberg Magnificent 7 Total Return Index fell 1.3% The Russell 2000 Index fell 0.5% S&P 500 Equal Weighted Index was little changed Currencies

The Bloomberg Dollar Spot Index rose 0.2% The euro was little changed at $1.1748 The British pound fell 0.3% to $1.3388 The Japanese yen fell 0.5% to 155.57 per dollar Cryptocurrencies

Bitcoin fell 1.2% to $86,739.34 Ether fell 3.3% to $2,854.75 Bonds

The yield on 10-year Treasuries advanced one basis point to 4.16% Germany’s 10-year yield advanced two basis points to 2.86% Britain’s 10-year yield declined four basis points to 4.47% The yield on 2-year Treasuries advanced one basis point to 3.50% The yield on 30-year Treasuries advanced two basis points to 4.83% Commodities

West Texas Intermediate crude rose 1.8% to $56.26 a barrel Spot gold rose 0.8% to $4,335.21 an ounce ©2025 Bloomberg L.P.