Wall Street’s summer calm cracked as a selloff in big tech sent major stock gauges lower, underscoring the market’s narrow reliance on a handful of growth giants.
The Nasdaq 100 slid 1.5% — its second-worst drop since April’s tariff shock — led by a rout in Nvidia Corp. That pressure overwhelmed gains in over 300 S&P 500 names, exposing the fragility of an index propped up by megacap muscle.
Home Depot Inc.’s results lifted big-box retailers, while Intel Corp. jumped as the U.S. is ironing out the details of a deal for the U.S. to take a 10% stake.
Treasurys rose, driving 10-year yields down four basis points to 4.30%. S&P Global Ratings said revenues from tariffs will help soften the blow to the U.S.’s fiscal health from tax cuts, enabling it to maintain its current credit grade. A dollar gauge wavered.
Positioning across U.S. equity markets remains at elevated levels following a strong second-quarter reporting season, according to Citigroup Inc. strategists including Chris Montagu. Individual investors are likely to slow their torrid pace of stock buying in September before resuming later this year, said Scott Rubner at Citadel Securities.
“It is always easier when the markets are going up,” said Nicholas Bohnsack at Strategas. “It is difficult to poke holes in the bull case; the path of least resistance is likely higher, but we find ourselves increasingly worried that traditional risk assets (stocks and bonds) appear priced to perfection.”
The technology sector reclaimed its spot as the S&P 500’s top performer last quarter, helping indexes rise to all-time highs, noted Bret Kenwell at eToro. While valuations appear stretched, elevated growth expectations help justify prices, and AI enthusiasm as well as momentum can help keep tech in the driver seat, he said.
“Whether money continues to flow into the ‘Magnificent Seven’ leaders or rotate within the group, investors will likely look for tech’s continued leadership in the second half of 2025,” he noted.
Traders are also gearing up for Powell’s speech on Friday in Jackson Hole, Wyoming, with the Treasury market seeing a quarter-point rate cut next month as virtually a lock and at least one more by year-end.
“As the market readies for Powell’s speech at Jackson Hole, we’ll argue that the biggest risk for Treasurys is if the Fed chief chooses to throw cold water on the widely anticipated September rate cut,” said Ian Lyngen at BMO Capital Markets.
While this is not Lyngen’s base-case scenario, he says the front-end of the curve is vulnerable to a correction if Powell doesn’t deliver on the degree of dovishness currently anticipated.
Investors are waiting to see if Powell affirms the market pricing — or pushes back with a reminder that new data arriving before the next policy gathering could change the picture. They’re also looking for clues about the longer-run trajectory of Fed cuts into next year.
“The market is all but pricing in a certainty for rate cuts in September and we agree with the market’s expectations,” said Stephen Schwartz at Pioneer Financial. “Rate cuts are warranted as financial conditions are too tight right now given the softening of the inflation data and the cracks we are starting to see in the labor market.”
A couple of weeks ago, when the latest jobs report revealed a slump in hiring, the case for lower rates appeared all but closed. Then came the sharpest spike in US wholesale prices in three years – fuel for the concern about tariff-led inflation that’s kept Fed officials on hold so far this year.
While the recent inflation data has been volatile with some conflicting signals, Schwartz says there’s a market perception that the inflation surge from 2022 is behind us.
“While we expect some near-term volatility, we believe markets will continue to move past the inflation situation, and that the economy and the US consumer are strong enough to continue growing,” he said.
At Bank of America Corp., strategists including Mark Cabana and Meghan Swiber say they don’t think Powell will sound as dovish as the market expects.
“Powell’s reaction function to recent stagflationary data will be key,” they noted. “Will he be spooked by jobs revisions or lean into the labor supply slowdown?”
A couple of weeks ago, when the latest jobs report revealed a slump in hiring, the case for lower rates appeared all but closed. Then came the sharpest spike in U.S. wholesale prices in three years – fuel for the concern about tariff-led inflation that’s kept Fed officials on hold so far this year.
While the recent inflation data has been volatile with some conflicting signals, Schwartz says there’s a market perception that the inflation surge from 2022 is behind us.
“While we expect some near-term volatility, we believe markets will continue to move past the inflation situation, and that the economy and the US consumer are strong enough to continue growing,” he said.
At Bank of America Corp., strategists including Mark Cabana and Meghan Swiber say they don’t think Powell will sound as dovish as the market expects.
“Powell’s reaction function to recent stagflationary data will be key,” they noted. “Will he be spooked by jobs revisions or lean into the labor supply slowdown?”
In an interview with Bloomberg Television, Fed Governor Michelle Bowman deflected when asked if she would be interested in leading the central bank as chair.
On the geopolitical front, President Donald Trump urged Russia’s Vladimir Putin and Ukraine’s Volodymyr Zelenskiy to show some “flexibility” as the US president accelerates his efforts to end the war in Ukraine and encourages the two leaders to hold a bilateral summit.
“While there’s a sense that the path to peace is at least slightly clearer, traders remain wary,” said Fawad Razaqzada at City Index and Forex.com. “And rightly so – the toughest conversations, namely over territory, still lie ahead.”
(Adobe Stock)
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