The S&P 500 and Nasdaq fell sharply, while the Dow Jones reached a record close above 41,000 points
The S&P 500 and Nasdaq Composite retreated on Wednesday, continuing the trend of moving out of high-flying technology shares into more rate-sensitive stocks, according to CNBC.
The S&P 500 dropped 1.39 percent, closing at 5,588.27, while the tech-heavy Nasdaq fell 2.77 percent to 17,996.92. This marked the Nasdaq's worst session since December 2022 and its first close below 18,000 since July 1.
Contrarily, the Dow Jones Industrial Average rose by 243.60 points, or 0.59 percent, ending at 41,198.08, achieving its first-ever close above 41,000. UnitedHealth's 4.5 percent gain, following a Wall Street upgrade based on its strong earnings report, significantly boosted the 30-stock index.
This followed a rally of more than 700 points on Tuesday, the blue-chip index’s best day in over a year.
The S&P 500 and Nasdaq faced pressure from a continued decline in megacap technology stocks, reversing their strong performance earlier this year driven by the artificial intelligence boom.
Wednesday marked the first time since 2001 that the Nasdaq fell more than 2.5 percent while the Dow gained. Information technology and communication services were the two worst-performing sectors within the S&P 500.
Significant drops were seen in Meta Platforms, which tumbled 5.7 percent, while Netflix and Microsoft fell over 1 percent each. Apple declined by 2.5 percent.
Semiconductor stocks also struggled after Bloomberg News reported that the Biden administration might impose stricter trade restrictions if companies continue to grant China access to US-made technology.
The VanEck Semiconductor ETF (SMH) fell more than 7 percent, its worst day since March 2020, with Nvidia and US-listed shares of Taiwan Semiconductor sinking more than 6 percent and nearly 8 percent, respectively.
The Russell 2000 slipped 1 percent, ending its five-day win streak. However, the small-cap-focused index has gained over 9 percent in the past five trading days as the market rally broadened. Meanwhile, the Nasdaq has lost over 3 percent in the same period amid the tech sell-off.
This shift comes as traders grow more optimistic about interest rate cuts, which should benefit small-cap stocks and companies with higher financing costs. Fed funds futures trading suggests a strong likelihood that the Federal Reserve will lower rates in September, according to the CME FedWatch tool.
“People are literally just selling some of the megacaps, taking some profits, and buying some of those more cyclical companies,” said Mike Dickson, head of research and quantitative strategies at Horizon Investments. “I would not be surprised to see this continue until earnings.”
