Nasdaq 100 Suffers 4% Decline Amid Shift to Defensive Assets

Technology Megacaps Halt S&P 500's Longest Weekly Winning Streak

The S&P 500 Index's longest weekly winning streak in four decades came to an end on Friday, as the technology megacaps that have powered the index's yearlong advance experienced a significant downturn. The Nasdaq 100 Index plummeted 4.1% at 2:35 p.m. in New York, putting the tech-heavy gauge on track for its biggest drop since April 2025.

The S&P 500 fell 2.2%, with the benchmark all-but-confirmed to miss out on a record 10th-straight week of gains, which would be the longest such stretch since 1985. The decline was largely driven by a shift out of technology names, particularly those tied to artificial intelligence (AI), as investors unwound their excess positioning in these stocks. A confluence of factors, including a weaker-than-expected forecast from Broadcom Inc. and rising interest-rate hike bets, has sapped enthusiasm for the technology that has been a driving force behind the bull market in recent years.

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The decline in technology stocks was particularly pronounced, with UBS Group AG's basket of AI winners falling 6.5%, the gauge's biggest drop since October. Super Micro Computer Inc., NuScale Power Corp., and ARM Holdings Plc were among the biggest decliners. "Tech stocks got way ahead of themselves and now it's hard to justify buying these shares at these lofty valuations," said Jeff Buchbinder, chief equity strategist at LPL Financial.

Buchbinder's firm downgraded their position on US tech shares this week from overweight to neutral, adding exposure to a mix of defensive and less volatile nooks in the market, including healthcare, utilities, and consumer staples. "The AI dream isn't dead. We're just looking for this incredible run to cool off before adding more exposure to tech shares," Buchbinder added.

The US job growth report for May topped all forecasts, with the unemployment rate holding steady. The data provides the clearest sign yet that the labor market may be breaking out of a prolonged period of lackluster hiring, even as fears of AI-related job loss persist. Thomas Simons, chief US economist at Jefferies, called the data a "nail in the coffin" for interest-rate cuts this year, with Treasury yields climbing after the report was released.

The US and Iran have made little progress in talks over an interim peace deal this week, with both nations seeing their worst clashes since the ceasefire began in April. Fighting between Israel and Hezbollah in Lebanon also continued, despite President Donald Trump's insistence that the two sides would stop hostilities. Tehran has insisted on a ceasefire in Lebanon before accepting a deal that will extend a truce by two months and reopen the Strait of Hormuz.

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In terms of single-stock moves, Lululemon Athletica Inc. dropped 8.5% after the company lowered its annual forecast due to deteriorating performance in North America. DocuSign Inc. fell 5.8% after providing an in-line forecast for second-quarter revenue. Guidewire Software Inc. tumbled 9.8% as the midpoint of its fourth-quarter subscription and support revenue forecast fell short of expectations.

Bitcoin fell below $60,000 for the first time since October 2024, extending its reversal from market darling after the reelection of President Trump to a casualty of a rapidly changing speculative landscape. "Bitcoin has fallen meaningfully every day this week, perhaps as high-risk investors have raised cash for upcoming IPOs," said Rocky Fishman, strategist and founder at Asym Research.