Stock Rotation Hits Big Tech as Fed Clouds Gather: Markets Wrap

(Bloomberg) — Wall Street traders bracing for an economic data deluge after the US shutdown ended drove stocks and bonds lower on concern over whether the reports will be able to clear the path for a Federal Reserve rate cut.

With optimism about the government reopening priced in, concern about valuations emerged, prompting a selloff in high-flying tech giants. Under the surface, some market observers pointed to a rotation into more defensive names. Among benchmarks, the Dow Jones Industrial Average was down only about half as much as the Nasdaq 100 Thursday. Bitcoin sank below $100,000.

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President Donald Trump signed legislation to end the longest shutdown in US history, but it could still take a while for the federal bureaucracy to fully restart. The October jobs report will skip the unemployment rate, US top economic adviser Kevin Hassett told Fox News’ America’s Newsroom.

Currently, traders are pricing in about even odds the Fed will cut rates in December. Chair Jerome Powell said last month that a reduction is “not a foregone conclusion,” with the decision to be premised on incoming information. Some traders may be concerned that the omission of key data due to the shutdown may bolster arguments for officials to stand pat.

With the flow of releases resuming only gradually, traders are left with continued data void, which means price action could be driven more by sentiment and positioning than by hard data, according to Fawad Razaqzada at Forex.com.

“The question now is whether the market’s recent exuberance has run its course,” he said. “After a stellar rally since April, technology shares look increasingly overvalued and overstretched, with sentiment tempered by a lack of fresh catalysts and a lull in economic data.”

The S&P 500 lost about 1.5%. Its equal-weighted version – which gives Dollar Tree Inc. as much clout as Apple Inc. – saw only a mild drop. The Nasdaq 100 slid 2%. A gauge of megacaps tumbled almost 3%.

The yield on 10-year Treasuries climbed three basis points to 4.10%. The dollar edged lower. Oil rose.

Over the past few sessions, Razaqzada said that a noticeable rotation has occurred in stocks, with traders moving out of high-growth names and back into defensive and value-oriented sectors.

“Is this a sign that risk appetite is fading, or merely the sort of rotation one expects in a healthy bull market? Time will tell,” he said. “But it’s worth noting that insider selling within the tech space has picked up lately, which rarely bodes well. Traders would do well to stay alert.”

Investors are taking some profits in megacap tech after an extended AI driven run and reallocating toward more reasonably valued sectors including industrials, financials, energy, and healthcare, according to David Miller at Catalyst Funds.

At the same time, higher-quality cyclicals are catching a bid as investors position for a slower but steady economic environment where earnings visibility matters more than hyper-growth narratives, he added.

“A rotation out of tech is arguably the healthiest development we’ve seen all year,” Miller said. “What we’re seeing now is constructive: investors are rediscovering the parts of the market that have been overshadowed by the AI narrative. That broadening gives the rally better footing.”

The tech rally off 2025 lows has pushed the group to relative valuation extremes, with the sector reaching more than one standard deviation above recent norms, according to Michael Casper and Nathaniel Welnhofer at Bloomberg Intelligence.

“A blistering revenue surge, not speculation, has fueled the run, but with premiums this stretched, fundamentals will need to keep sprinting just to stay in place, they concluded.

Growth and AI megacaps have done most of the heavy lifting in recent months, and a broadening of participation is healthy for a sustainable rally, noted Mark Malek at Siebert Financial.

“The question now is whether this discrepancy in performance marks the beginning of a secular rotation, or if it’s simply the market being the market,” he said.

“We do not think we are in an AI bubble yet, largely because when capacity is turned on, every bit of it is backlogged and oversubscribed,” said Carol Schleif at BMO Private Wealth. “The spending on it has so far been largely orderly and it’s still early in the AI story.”

While some market participants are worried about the increasingly debt financed nature of the spending, she noted that balance sheets across the hyperscalers are largely under-levered, with some room to increase their funding sources, which may include equity or even cash.

The slide in tech is making Nvidia Corp.’s earnings next week more important than ever, according to veteran Wall Street strategist Louis Navellier. A robust outlook by Chief Executive Officer Jensen Huang is key to a strong year-end for the stock market, he said.

A surprisingly cautious stance among long-short hedge funds in October could lay the ground for a year-end rally as they play catch-up amid benign newsflow, according to JPMorgan Chse & Co. strategists.

Data from the team including Nikolaos Panigirtzoglou shows a sharp drop in equity beta last month, implying the funds turned more risk averse. That coincided with increased fears around potentially overblown AI stock valuations.

“We expect markets to grind higher – though likely with continued volatility,” Schleif said. “The gears of the government should be working again soon, and while that is a relief for markets and the economy, there is still plenty of uncertainty, particularly around the missed inflation and jobs data and how these fronts have been faring.”

While the data blackout has made the Fed’s job difficult, she still expects officials to cut interest rates next month.

Market odds of another Fed rate cut in December have dropped from a near-certainty before the last Fed meeting.

To Don Rissmiller at Strategas, this matters because there has been a worrying package of US data recently, but there’s been lack of official government reports to validate the extent of this weakness.

“The US shutdown has ended, but there will be lingering disruptions for several months,” he said. “It’s understandable that monetary policymakers want to move prudently – but this leaves open the possibility that US labor market conditions weaken further in the fourth quarter.”

Stubbornly high inflation and continued weakness in the labor market are driving a growing divide among Fed officials on the best path ahead for interest rates.

Fed Bank of Cleveland President Beth Hammack told MarketWatch she remains focused on price stability as the labor market softens, adding it is critical for the US central bank to reach its 2% inflation target. Separately, her San Francisco counterpart Mary Daly said it’s too soon to decide whether policymakers should lower rates in December.

Their remarks came a day after Fed Bank of Boston President Susan Collins said she favored holding interest rates steady amid still-strong growth that could slow or stall progress on cooling inflation.

At Evercore, Krishna Guha says Collins’ decision this week to speak out clearly against a December cut raises his level of concern about Powell’s struggle to manage deep divisions within the Fed and creates additional uncertainty over the path of rates.

“We would shift to a December skip/January cut if we thought a one meeting delay for more data offers a plausible way to resolve these stark differences but we do not think it does,” Guha said. “We think a skip creates more problems for Powell than it solves, which is why we still end up favoring a ‘hawkish cut’.”

Of course, greater clarity on the performance of the underlying real economy could also bolster the case for a quarter-point move if the new information reveals further softening in the labor market and relatively benign inflation – both of which are active debates, to be sure, according to Ian Lyngen, Vail Hartman and Delaney Choi at BMO Capital Markets.

“Despite the fact that investors have long awaited the resumption of dataflow from the BLS, the upcoming reports will still likely be met with some skepticism given the data-collection delays and timetable shifts,” they said.

In addition, the reopening of the US government doesn’t mean the flow of economic data will be restored straight away, according to Thomas Ryan at Capital Economics.

“Survey-based data not collected in October during the funding lapse will take weeks to gather, process and quality check. Publishing missing field-collected data, like consumer prices, is probably an impossible task,” he said.

For investors, the message is clear — stay nimble, said Seema Shah at Principal Asset Management.

“In an environment where information is scarce and cross-currents risk evolving into rip tides, reactions can be magnified, and portfolio flexibility matters more than bold conviction,” she noted.

Corporate Highlights:

Cisco Systems Inc., the network-equipment giant, boosted its 2026 forecast, showing progress in its effort to capture more artificial intelligence spending. Google is under investigation by European Union antitrust watchdogs over concerns it unfairly demotes some news results in a probe that risks adding to its €9.5 billion ($11 billion) EU fines tally and worsening fraught relations with the Trump administration. Tencent Holdings Ltd. has struck a deal with Apple Inc. that will see the iPhone maker handle payments and take a 15% cut of purchases in WeChat mini games and apps, resolving a high-profile dispute that’s dogged the world’s largest smartphone arena. Tencent posted a faster-than-anticipated 15% rise in revenue, sustaining the steady growth that’s helped the social media leader attract investors despite eschewing splashy investments in AI infrastructure. Alibaba Group Holding Ltd. is preparing an overhaul of its main mobile AI app in coming months to help it more closely resemble OpenAI’s ChatGPT, a key step in a broader effort to catch rivals and eventually earn money off individual users. Baidu Inc. released the latest iteration of its flagship AI models, trying to keep up in the highly competitive Chinese artificial intelligence arena. Verizon Communications Inc. is discussing plans to announce job cuts across the company next week, according to people familiar with the wireless carrier’s plans, a major step in a transformation led by new Chief Executive Officer Dan Schulman. Walt Disney Co. reported sales that fell short of Wall Street estimates and said a slate of big-budget films, including a new Avatar picture, will weigh on results for the first quarter of its new fiscal year. Pfizer Inc. is looking to sell its remaining stake in Covid-19 vaccine partner BioNTech SE, a remnant from one of the pandemic’s most lucrative collaborations. Uber Technologies Inc. is expanding the availability of its reserved rides option to include popular ski destinations, part of a larger effort to lure wealthy consumers toward more premium services. Unionized Starbucks Corp. baristas are launching a wave of walkouts Thursday, a work stoppage they say could grow to become their biggest strike to date. Brookfield Corp.’s earnings rose in the third quarter as the Canadian money manager forges ahead with plans to evolve into an investment-led insurer. Burberry Group Plc’s sales rose as the UK fashion brand saw demand improve in the region that includes China, an indication its turnaround bid under Chief Executive Officer Joshua Schulman is starting to work. Rolls-Royce Holdings Plc reiterated its full-year profit guidance as strong demand for jet engines bolsters the British manufacturer’s order book. Deutsche Telekom AG said it would raise dividends for 2025 after third-quarter profit rose from a year earlier, bolstered by a record number of new users of home fiber lines in Germany. Siemens AG expects adverse currency movements to weigh on its results as the engineering company cuts its stake in MRI maker Siemens Healthineers AG to focus on growth in software. Red Bull GmbH risks hefty European Union antitrust fines after regulators hit the energy drinks giant with a full-scale probe into allegations it flouted the bloc’s competition rules. Glencore Plc and Hillhouse Investment Management plan to invest in Chuangxin Industries Holdings Ltd.’s upcoming initial public offering in Hong Kong, people familiar with the matter said, signaling confidence in the Chinese aluminum smelter’s prospects as the metal’s price surges. Ubisoft Entertainment SA said it’s delaying the publication of its first-half financial results and requested the shares be halted from trading until then. Enel SpA raised its profit guidance for this year, after adjusted net income for the first nine months marginally beat analysts’ estimates with contributions from Spain and Latin America helping to offset hydro-power weakness in Italy. Repsol SA is considering a reverse merger of its upstream unit with potential partners including US energy producer APA Corp., people with knowledge of the matter said, as it seeks ways to list the business in New York. What Bloomberg Strategists say…

“The focus is quickly turning to a deluge of economic data that offers traders minimum visibility on the path forward for rates. It seems they’re erring on the side of caution and leaning toward a pause next month as Fed policymakers parse signals from the delayed releases, which ultimately shapes up to be a short-term negative for equity markets.”

—Kristine Aquino, Managing Editor, Markets Live. For the full analysis, click here.

Some of the main moves in markets:

Stocks

The S&P 500 fell 1.6% as of 1:34 p.m. New York time The Nasdaq 100 fell 2.2% The Dow Jones Industrial Average fell 1.2% The MSCI World Index fell 1.2% Bloomberg Magnificent 7 Total Return Index fell 3% The Russell 2000 Index fell 2.5% S&P 500 Equal Weighted Index fell 0.7% Currencies

The Bloomberg Dollar Spot Index fell 0.3% The euro rose 0.5% to $1.1647 The British pound rose 0.5% to $1.3203 The Japanese yen rose 0.3% to 154.35 per dollar Cryptocurrencies

Bitcoin fell 3.3% to $98,535.14 Ether fell 6.2% to $3,210.26 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.10% Germany’s 10-year yield advanced four basis points to 2.69% Britain’s 10-year yield advanced four basis points to 4.44% The yield on 2-year Treasuries advanced two basis points to 3.58% The yield on 30-year Treasuries advanced three basis points to 4.69% Commodities

West Texas Intermediate crude rose 0.3% to $58.64 a barrel Spot gold fell 0.7% to $4,165.23 an ounce ©2025 Bloomberg L.P.