After soaring nearly 50% since April, U.S. tech stocks wobble as investors play it safe ahead of the Fed’s big speech.
U.S. technology stocks are flashing warning signs after months of outsized gains. A rally that lifted the sector nearly 50% since April has started to falter, raising doubts about how long AI enthusiasm can keep markets floating.
The S&P 500 tech index has dropped about 2.5% this week, while the Nasdaq is off around 2%. Moreover, shares of AI leaders have taken the sharpest hits: Nvidia is down nearly 5%, and Palantir has plunged 16%.
95% of Companies See No AI Gains
There are also growing concerns about whether AI is truly paying off are also weighing on sentiment. A Massachusetts Institute of Technology study found that 95% of companies are seeing no return on AI investments. At the same time, OpenAI CEO Sam Altman recently warned that markets may be caught in an AI investment bubble, fueling doubts about runaway optimism.
Plus, the retreat comes just days before Federal Reserve Chair Jerome Powell’s highly anticipated Jackson Hole speech. Additionally, Keith Lerner, co-chief investment officer at Truist Advisory Services, mentioned,
“When you have overcrowding and you have had such strong performance, it doesn't take much to see an unwind of that.”
Moving forward, investors are trimming risk and locking in profits as they brace for Powell’s comments, which could sway expectations on interest rate cuts. The overall tension is amplified by stretched valuations—tech’s price-to-earnings ratio recently hit 30 times next year’s earnings, the highest in a year.
Beyond Tech: A Shift in Focus
While tech feels the sting, other areas of the market are holding firm. Consumer staples, healthcare, and financials have shown relative resilience, suggesting investors may be rotating into more defensive sectors.
Still, the tech sector’s dominance means any stumble carries broader weight. As Chuck Carlson of Horizon Investment Services put it,
“There are a lot of people who have overweighted tech, and it has worked for them. But at some point, even the strongest rallies need to pause.”
