Tech Giants Tumble Anew in Momentum-Trade Unwind: Markets Wrap

(Bloomberg) — Wall Street traders kept driving a rotation out of technology giants, whose all-weather earnings made them safe bets at times of economic uncertainty, and into a broader category of companies tuned to improving growth prospects. Bitcoin extended its selloff.

Stocks pared losses as nuclear talks between the US and Iran appeared on track after an earlier report said they had hit a snag. While the S&P 500 was mildly lower, most of its shares rose. The Nasdaq 100 slid 1.8%. Software firms got hit again, but losses were bigger among chipmakers.

In late hours, Alphabet Inc. reported solid revenue, but said it plans to spend far more than investors expected in 2026. Qualcomm Inc. gave a tepid outlook. Arm Holdings Plc’s forecast fails to satisfy skeptical investors.

“There might be a glass half full and a glass half empty perspective on the moves here,” said Kyle Rodda at Capital.com. “On the one hand, tech stocks are potentially too richly valued. On the other hand, the strength in the market is broadening out in a sign of improving economic fundamentals.”

Traders have stepped up their rotation out of tech and into everything from small caps to value plays in 2026 as they sought companies that will benefit from economic growth. In a further sign of broadening, an equal-weighted version of the S&P 500 – where the likes of Nvidia Corp. carry the same heft as Lululemon Athletica Inc. – climbed 0.9% Wednesday.

But it was a brutal day for quantitative strategies tuned to specific characteristics, among them momentum, or the propensity of rising stocks to keep rising. A security tracking the strategy, the iShares MSCI USA Momentum Factor ETF, plunged 3.7%. A Goldman Sachs Group Inc. basket that goes long high-beta momentum names and short the opposite tumbled 9.8%.

The S&P 500 fell 0.5%. The Nasdaq 100 saw its worst two-day rout since October and breached its 100-day moving average. The IShares Expanded Tech-Software Sector ETF slid 1.8%. A gauge of chipmakers slipped 4.4%. Advanced Micro Devices Inc. sank 17% on a disappointing forecast.

Bitcoin slumped 4.6% to $72,627, with prediction traders betting the world’s most-popular cryptocurrency will drop below $65,000. The yield on 10-year Treasuries advanced one basis point to 4.28%. The dollar added 0.3%.

Oil rose as conflicting reports on the status of nuclear talks between the US and Iran clouded the outlook on whether Washington will proceed with military strikes. Gold remained below $5,000.

“Software stocks are being decimated as worries permeate over whether AI will cannibalize their businesses,” said Bret Kenwell at eToro. “However, while the long-term implications are still somewhat unknown, many of these firms continue to generate solid earnings and revenue growth, and analyst expectations for these metrics continue to trend higher.”

Kenwell notes that the software space is quickly approaching “oversold” levels and likely “nearing capitulation.”

“Right now, investors are not asking themselves where the value is,” he said. “Instead, they’re throwing out all software stocks — even as many top firms within this space are doing just fine.”

However, the bigger long-term risk may be on valuation, Kenwell said. Once this selloff is over and the stocks recover from their oversold condition, the question is: Will there be a new ceiling on just how much investors are willing to pay for them?

“If so, that could limit the upside and the recovery time for this space — high quality or not,” he concluded.

Since reaching an all-time high in October, the S&P 500 software group has plunged over 25%. For those searching for a bottom, Jeffrey Yale Rubin at Birinyi Associates Inc. notes that the average bear market in the group is a slide of 32.53%. And the worst drop – 53.94% – occured during the global financial crisis, he said.

“The news for the software stocks gets worse by the day,” said Matt Maley at Miller Tabak. “However, no matter where they are headed over the intermediate and long-term, they are getting poised for a nice bounce. Investors should be careful about negative bets over the short-term.”

“Of course, we have been saying for some time now that if the tech sector sees a broad decline — with the all the different groups within the sector falling in unison — it’s going to be very tough for the broad stock market to hold up in the face of that kind of scenario,” Maley said.

However, we’re going to have to see more days like that before we can raise a “meaningful yellow warning flag,” he concluded.

“Ultimately, we view this as another AI scare with software and related areas bearing the brunt of it,” said Chris Senyek at Wolfe Research. “Within tech, we’d use weakness to buy AI related semiconductor stocks, and our favorite sector for new money is discretionary. In particular, stocks levered to an uptick in spending as tax refunds hit in February-April.”

It’s not that AI is being abandoned by markets, according to Charu Chanana at Saxo. She says the issue is that it’s being “priced more carefully.”

Brookfield Asset Management plans to hunt for opportunities in software companies after investors pared back their positions in the sector amid fears of artificial intelligence disruption.

“I’d say in our opportunistic business it creates a big opportunity because then when things sell off, often they go way too far and therefore opportunity comes about,” Chief Executive Officer Bruce Flatt told Bloomberg Television. “I suspect somewhere in this cycle of software, there’s going to be some amazing value to be made there.”

“We recommend that investors stay positioned in market-leading, profitable software companies with strong AI innovations. They’re best placed to weather near-term uncertainty and benefit from the eventual rebound,” said Sam Stovall at CFRA.

Worries that advancements in the artificial-intelligence technology will disrupt traditional software business models has sent shares of software and AI-linked names plunging this year. For short sellers betting against the group, that’s meant $24 billion in paper gains, according to data from S3 Partners LLC.

“It’s been a tough week so far, but let’s keep in mind the broader picture here,” said Mona Mahajan at Edward Jones. “It is hard to get overly bearish when we are still looking at an economy that we think is growing above trend.”

Mahajan also notes she’s looking at an earnings growth picture that is still double digits for 2026, driven by tech sectors but also non-tech sectors

“So a little broadening there,” she said.

Tech is stepping back as cyclical and defensive stocks step up, and while the recent volatility caught attention, the data points to a “technical reset” — not a fundamental break, according to Mark Hackett at Nationwide.

“This is a rotation, not a rupture,” he said. “Seeing that shift near record highs highlights the market’s underlying strength.”

On the economic front, US service providers saw the strongest back-to-back growth since 2024 as business activity picked up even as employment barely expanded. While companies added fewer jobs than expected, recent data has pointed to limited layoffs.

“The growth impetus in the US looks solid,” said Florian Ielpo at Lombard Odier Asset Management. “The employment index decline is worth monitoring, but it is not yet flashing red – ‘Goldilocks’ it is for now.”

“While we remain positive on the outlook for US equities and expect the S&P 500 to move higher, we believe diversification is key to managing market risks and enhancing long-term returns,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.

To position for a broadening rally, she likes financials, health care, utilities, and consumer discretionary in the US, and see attractive opportunities across Asia and Europe.

Corporate Highlights:

Nvidia Corp. is nearing a deal to invest $20 billion in OpenAI as part of its latest funding round, according to people familiar with the matter, marking the chipmaker’s single biggest investment in the ChatGPT developer. SpaceX held meetings with banks from outside the US for its IPO, according to people familiar with the matter, as Elon Musk’s rocket and satellite maker targets a listing this year on an ambitious timeline. Amazon.com Inc. is taking the wrapper off its upgraded Alexa in the US, offering the AI-enhanced digital assistant to paying Prime customers and introducing a free version for everyone else. Texas Instruments Inc. has reached an agreement to buy the US chip firm Silicon Laboratories Inc. for about $7.5 billion, deepening its exposure to several long-standing markets for chips including the home appliance, power, industrial and medical-device sectors. Adobe Inc. ramped up its advertising in 2025, spending $1.4 billion to promote its brand in the face of steep competition and skepticism from Wall Street that the company is a loser in the age of AI. The owner of the Nasdaq 100 Index is proposing to speed up the inclusion of newly listed, large-cap firms in the widely followed equity benchmark as a flurry of technology giants are slated to go public this year. New York Times Co. tumbled after its results raised concerns on Wall Street about a jump in spending. Operating costs rose by more than 10%, which the company partially attributed to growing litigation costs, higher compensation expenses and new product development. The Washington Post, owned by billionaire Jeff Bezos, began a round of job cuts on Wednesday that will shrink nearly all of its news departments, an effort to pare losses and restore the struggling newspaper to profitability. Target Corp.’s new chief executive officer, Michael Fiddelke, acknowledged in his first town hall that the big-box retailer has lost trust with shoppers and employees and pledged to rebuild that connection. Chipotle Mexican Grill Inc.’s doldrums are set to extend into 2026, with the burrito chain offering a full year-sales target that fell short of Wall Street’s expectations. Uber Technologies Inc. issued a mixed forecast and promoted an outspoken driverless-vehicle bull to be its new chief financial officer, signaling further investment in a closely watched area of the ride-hailing company’s business. Ford Motor Co. has held discussions with China’s Zhejiang Geely Holding Group Co. about sharing manufacturing capacity in Europe, with the US carmaker seeking new global partnerships as it overhauls its electric vehicle strategy. Prudential Financial Inc. said it expects its decision to halt new life insurance sales in Japan to result in a $300 million to $350 million impact on its profit this year, Chief Executive Officer Andy Sullivan said Wednesday. Eli Lilly & Co. provided an upbeat sales forecast for the year Wednesday as strong demand for its weight loss drug cemented its position at the top of the obesity market. Novo Nordisk A/S’s chief executive officer asked investors to stick with him after a dire sales forecast caused a share price rout, saying a surge in prescriptions for cheaper obesity drugs will eventually revive growth. AbbVie Inc. forecast 2026 profits above Wall Street’s expectations, though investors saw vulnerabilities in some of the company’s key brands. GSK Plc’s new chief executive officer plans to speed up research and development and look for acquisitions as the British drugmaker tries to convince investors it can offset a looming patent cliff. SAS AB is in talks with Boeing Co. and Airbus SE about making a large purchase of widebody jets as the Scandinavian carrier bets on increasing demand for long-haul travel from its hub in Copenhagen, the airline’s chief executive officer said. First Brands founder Patrick James and his brother Edward pleaded not guilty to fraud charges and face a July 13 trial in New York stemming from the multibillion-dollar collapse of their auto-parts supply business. D.E. Shaw & Co. criticized the board of CoStar Group Inc. in a letter to the company, putting further pressure on the real estate analytics group as it faces a separate campaign from activist investor Dan Loeb. Enphase Energy Inc. said that the looming expiration of federal tax credits for clean electricity investments is boosting consumer demand. Johnson Controls International Plc sees its adjusted earnings per share rising at the fastest pace in a decade after strong quarterly order growth. Clear Street Group Inc., a Wall Street broker built on cloud computing technology, is looking to raise as much as $1.05 billion in an initial public offering. Brookfield Asset Management named Connor Teskey chief executive officer, marking the final step in Bruce Flatt’s long-held plans to replace himself at the helm of the $1 trillion asset manager. UBS Group AG posted a stronger increase in 2025 trading revenue than several of its US rivals, even as the Swiss company was forced to implement new capital rules ahead of almost all global banks. Stellantis NV is facing delays to some electric models due to manufacturing difficulties at one of the company’s battery makers, according to people familiar with the situation. Infineon Technologies AG said it will ramp up its investment in technology for artificial intelligence, working to diversify its business in a prolonged slump in auto and industrial chip demand. What Bloomberg Strategists say…

“The problem with ditching tech stocks en masse is that there is little fundamental reason in the long term. The rotation narrative has found some support during the current quarter, but is increasingly looking stretched based on earnings results.”

—Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.

Some of the main moves in markets:

Stocks

The S&P 500 fell 0.5% as of 4 p.m. New York time The Nasdaq 100 fell 1.8% The Dow Jones Industrial Average rose 0.5% The MSCI World Index fell 0.4% Bloomberg Magnificent 7 Total Return Index fell 1.7% The Russell 2000 Index fell 0.9% Currencies

The Bloomberg Dollar Spot Index rose 0.3% The euro fell 0.1% to $1.1803 The British pound fell 0.3% to $1.3651 The Japanese yen fell 0.8% to 156.93 per dollar Cryptocurrencies

Bitcoin fell 4.6% to $72,627.13 Bonds

The yield on 10-year Treasuries advanced one basis point to 4.28% Germany’s 10-year yield declined three basis points to 2.86% Britain’s 10-year yield advanced three basis points to 4.55% Commodities

West Texas Intermediate crude rose 1.7% to $64.31 a barrel Spot gold fell 0.2% to $4,938.68 an ounce –With assistance from Lu Wang and Chris Nagi.

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