Tech stocks: "One thought is heaven, one thought is hell"—violent rotations in U.S. stocks leave bulls directionless

U.S. stock market bulls are experiencing a troubling period of disorientation. Over the past week, bets on previously most reliable tech giants have frequently flipped, while the market has swung violently between risk aversion and risk chasing, leaving investors’ playbooks ineffective.

The trigger for this turbulence was Friday’s stronger-than-expected jobs data, almost completely extinguishing hopes for a rate cut this year and pushing the market into what 22V Research defines as “risk aversion mode”—the first time since January. Since then, the information technology sector has switched between best and worst performer in the S&P 500 for four consecutive days, and the Nasdaq 100 has seen single-day swings of 1% or more for five straight trading sessions, tying the longest streak since August 2024.

Multiple Wall Street institutions have issued warnings. Wells Fargo strategists called last week’s tech-led selloff an “awakening moment” for investors; JPMorgan downgraded their near-term outlook to “tactical caution,” noting investors may continue to cut holdings in AI-related companies leading this rally; Bank of America warned that an increasing number of “bear market signals” point to a nearing market top.

Extreme Rotation: Historic Volatility Within the Market

Dennis DeBusschere, Chief Market Strategist at 22V Research, described the current situation as an unprecedented extreme state.

“The market is swinging back and forth between risk appetite and risk aversion in ways that have never been seen in history,” he said.

The institution’s “regime dispersion indicator”—a rough gauge of how fast market sentiment shifts from fear to greed—has jumped to the 94th percentile of historical readings, indicating extremely high disagreement among investors over the direction of stocks.

The Nasdaq 100 plunged 4.8% in a single day last Friday, then swung between gains and losses over the following days, with single-day moves of over 1% for five days straight. Ken Mahoney, CEO of Mahoney Asset Management, compared the situation to “The Perfect Storm” film: “This market is facing strong winds, cold fronts, and heavy rain at the same time.”

The Dilemma of Economic Resilience and Tightened Monetary Policy Expectations

At the core of this rotation is a contradiction: investors confront two sets of conflicting signals—on one hand, resilient economic fundamentals; on the other, a rising probability that monetary policy will remain restrictive.

After last Friday’s robust jobs data, Thursday’s Producer Price Index showed May PPI rising at the fastest pace in over three years, further squeezing room for rate cuts. Even so, investors bought heavily hit chip stocks on dips that day, with risk appetite making a brief comeback.

Kim Forrest, CIO and founder of Bokeh Capital Partners, said: “Some extraordinary events happened this week, which fully shows that investors are being torn between the extremes of fear and greed.”

22V Research strategists expect greater factor rotations and a narrower leadership in the market ahead, advising investors to expect increasingly frequent shifts between risk appetite and risk aversion.

Focus Turns to the Fed: Warsh’s First Appearance Draws Attention

Currently, all eyes are on the Federal Reserve’s next steps. Investors are closely watching the Fed’s rate decision at 2 PM Wednesday, as well as the first press conference by new Fed Chair Kevin Warsh.

Before that, the direction of market volatility is full of uncertainty. Bokeh’s Forrest pointed out that summer volatility could go either way: traders going on vacation may narrow price swings, but reduced market participation could amplify selling pressure on down days.

Mahoney summed up the earlier “brainless buying” era in a more straightforward way: “We entered a period where you could just throw darts and make money, no matter what you bought. But the market was never meant to be that easy.”

Risk Warning and DisclaimerMarkets are risky, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investing based on this article is at your own risk.