In a dramatic turn of events, the S&P 500 Index experienced its steepest drop since December 2022, ending a remarkable 356-session run without a decline of at least 2%. This streak, the longest since 2007, came to an abrupt halt on Wednesday as high-flying technology stocks led a sharp market selloff.
The S&P 500 slid 2.3%, marking its worst day since December 2022, as investors reacted to significant losses in major tech stocks. The index had previously risen as much as 15% above its 200-day moving average, a level often seen as a precursor to potential selloffs.
“All good things must come to an end — but this isn’t the end of the world for the US stock market,” said Jay Woods, chief global strategist at Freedom Capital Markets. “The rotation trade into small caps and value is still on, with volatility picking up as weak seasonal factors come into play ahead of US election season.”
Among the hardest hit were shares of Tesla Inc., which plummeted 12% in their biggest drop since September 2020 after missing second-quarter profit estimates. Google parent Alphabet Inc. also saw a decline due to weakness in YouTube advertising revenue, contributing to a 3.7% drop in the Nasdaq 100 Index, its worst day since October 2022. These losses pushed the S&P 500 4.2% below its all-time closing high.
Wall Street is now focused on the potential slowdown in profit growth for tech giants, with key earnings reports from Apple Inc., Microsoft Corp., Amazon.com Inc., and Meta Platforms Inc. expected next week. The reaction of dip-buyers will be closely watched as these Big Tech companies unveil their results.
Interestingly, declines in other market segments, such as small caps, were less severe, with traders expressing growing confidence in potential interest-rate cuts by the Federal Reserve. Despite the recent selloff, the S&P 500 had been enjoying a robust rally, climbing above 5,600 and achieving 38 all-time closing records this year. This performance ranks among the best stretches of record-setting gains this century, second only to 2021.
Equities have recently been trading within a tight range, with the S&P 500 moving at least 1% in either direction on only 25 out of 141 trading sessions in 2024. Investors are now entering what is historically the most challenging period of the year for stocks, with August and September looming.
“This is more about a heavyweight tech unwind that’s influencing the benchmarks,” said Todd Sohn, managing director of ETF and technical strategy at Strategas Securities. “It’s painful, but good for the overall market beyond growth stocks since non-tech stocks are still hanging in there.”
As the market navigates these turbulent waters, the coming weeks will be crucial in determining whether the recent dip is a temporary blip or the start of a more prolonged downturn. Investors will be keeping a close eye on corporate earnings and Federal Reserve policy decisions to gauge the market’s next moves.