S&P and Nasdaq fall below Friday's lows: healthy reset or warning sign?
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US stocks continued their decline, with the S&P 500 Index, Nasdaq Index, and Dow Jones Index all breaking below last Friday's lows, led by technology and energy sectors. This round of decline lacks a clear driving catalyst, creating significant divergence among market participants regarding the nature of the downside.
Brian Garrett, Head of Equity Execution in Goldman Sachs' Cross-Asset Sales Division, summarized the core dilemma of the current situation as: "Is this a healthy reset or a warning signal?" He personally leans towards the former, believing that after volatility, the market will stand on a more solid foundation.
Andrew Tyler, Head of Market Intelligence at JP Morgan, expects the market to remain volatile in the short term and notes that US stocks may underperform developed markets such as Europe during this round of rotation.
Bitcoin and gold were simultaneously sold off, while the bond market remained relatively calm. This combination suggests that some of the selling is due to liquidity or margin requirements rather than pure risk aversion. The upcoming US CPI data and statements from Federal Reserve Chair Powell at next week’s FOMC meeting will be key events in determining market direction.
Tech Stocks Under Pressure, Apple Takes the Lead
The technology sector is the core source of this decline, with semiconductor stocks weakening again.
Apple suffered the most direct pressure, which the market attributes to the disappointing presentation at yesterday’s Worldwide Developers Conference (WWDC).
The energy sector also fell in sync, but historically, lower oil prices usually provide support to the stock market. Currently, the weakness in the overall indices is mainly dragged down by the weight of technology and energy, while most other sectors remain in positive territory.
In the short term, covering action by shorts at the opening quickly faded, with sellers of zero-day options (0-DTE) call options dominating negative delta flows, intensifying downward pressure in the market.
Rotation Rather Than Reducing Positions Becomes Mainstream Choice
According to Bloomberg, after several consecutive weeks of continuous inflows, there was a sudden shift during this round of tech stock sell-off. However, investors’ overall interest in equity assets has not fallen significantly. The current market prefers sector rotation instead of broadly reducing positions.
Deutsche Bank data shows that last week hedge funds continued to aggressively buy, with large US tech stock positions reaching the 97th percentile in history. Even so, overall stock exposure has not become excessively concentrated, which supports the view that "there is still room for incremental buying," even as upward momentum in the index has stagnated.
Capital.com Senior Market Analyst Daniela Hathorn pointed out:
"Perhaps the most important development is that after weeks of one-way rises, two-way price action is finally emerging in the market."
She believes that rising yields, warming inflation expectations, and renewed geopolitical uncertainties are jointly forcing investors to reassess valuation levels.
US Stocks May Underperform Europe Temporarily
Several analysts believe that this round of tech stock adjustments will have a more profound impact on the relative performance of US stocks. Tyler stated:
"This may not necessarily be a broad-based rally. Tech stocks may continue to decline in absolute terms, causing the S&P 500 to move sideways or slightly downward. US stocks will underperform other developed markets during this rotation."
He is particularly optimistic about the tactical outperformance of UK and EU markets relative to US stocks until tech stocks stabilize.
For Europe, the low exposure to technology and artificial intelligence is a relative advantage, but this assumes Middle East geopolitical tensions do not further deteriorate. Bloomberg reports that despite continued tensions, President Trump has clearly shown a willingness to restrain escalation.
On the interest rate front, this week’s ECB rate hike has been fully priced in by the market, while the Fed’s trajectory remains more uncertain. The yield on 10-year US Treasury bonds is currently hovering above 4.5%. Analysts point out that a much bigger rate move is needed to trigger a new round of stock market declines.
CPI Data and Officials’ Statements Will Steer Short-Term Direction
The market is currently facing a series of intensive risk events. Tyler stated that CPI data released this Wednesday will largely determine whether the bond market can stabilize. Meanwhile, the Fed is currently in the "blackout period," limiting officials’ ability to guide expectations, which poses additional downside risk for stocks.
Brian Garrett reminds that the market’s attention to macroeconomic data is currently significantly insufficient, although such data have substantive impacts on interest rates and the job market.
He advised investors to hedge S&P 500 options with equal-weight S&P 500 index, or focus on structural opportunities in the S&P 500 ex-AI group to capture rotation trades.
Hathorn summarized that the market is more likely to enter a consolidation phase in the coming weeks, rather than continue the nearly vertical rise seen since April. Investors will need more evidence to confirm that corporate profits can continue to outperform amid increasingly complex macro headwinds.
Risk Warning and DisclaimerThe market carries risk; investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Invest accordingly, at your own risk. ```