In a tumultuous week for U.S. tech stocks, the Nasdaq 100 index suffered its worst day since late October 2023, closing down 2.1% on Friday. This marked the fourth consecutive week of declines for the tech-heavy index, a negative streak not witnessed since May 2022. The Invesco QQQ Trust (NASDAQ:QQQ), closely linked to the Nasdaq 100, mirrored the downturn, experiencing a weekly tumble of 5.3%, its most substantial drop since October 2022.
Factors Contributing to the Downturn:
- Federal Reserve Outlook: The pessimistic sentiment surrounding tech stocks was exacerbated by delays in interest rate cuts, mixed corporate earnings guidance, and heightened geopolitical risks. Federal Reserve Chair Jerome Powell’s dismissal of rate cuts due to concerns about the pace of disinflation added to investor apprehension.
- Semiconductor Industry Weakness: Tech stocks faced significant headwinds this week, primarily driven by widespread losses in the semiconductor sector. Weaker guidance from industry giants such as ASML Holding N.V. (NASDAQ:ASML) and Taiwan Semiconductor Manufacturing Company (NYSE:TSM) triggered a sell-off, with the VanEck Semiconductor ETF (NYSE:SMH) plunging 10%, its worst performance since January 2022.
- Impact on AI Sector: The downturn prompted investors to reassess the outlook for the artificial intelligence (AI) sector, with even high-performing companies like Nvidia Corp. (NASDAQ:NVDA) witnessing a substantial decline of 12.9% for the week, the most significant drop since August 2022.
- Geopolitical Tensions: Geopolitical tensions, particularly in the Middle East, further rattled investor confidence. Israel’s response to Iranian attacks, though limited, underscored the ongoing geopolitical risks, contributing to market volatility.
Technical Indicators Signal Bearish Trends:
- The Nasdaq 100 breached its 100-day moving average for the first time since October 2023, suggesting a potential reversal of the six-month-long bull market.
- Market breadth indicators reflect significant weakness, with only 22% of stocks trading above the 50-day moving average and a mere 9% trading above the 20-day moving average, indicating a lack of confidence in the broader tech market.
As the week concluded, investors demonstrated caution amid uncertainties surrounding interest rates, corporate earnings, and geopolitical developments. The Nasdaq 100’s performance underscores the challenges facing the tech sector, highlighting the need for vigilance and strategic decision-making in navigating volatile market conditions.
