The S&P 500 Index swung violently on Tuesday, almost wiping out a 2.3% plunge to close modestly lower, as investors reacted to headlines on the Iran war and looked ahead to figures that may show inflation accelerating.
The US equities benchmark slipped 0.3%, as a rotation out of the technology stocks that had propelled the market higher for most of the year gained traction. The technology-heavy Nasdaq 100 Index lost 1.1% after being down more than 4%. The Philadelphia Semiconductor Index, home to chip bellwethers such as Nvidia Corp., retreated 1.9% following a 5.6% rally on Monday. Micron Technology Inc. lost 1.4%, while Broadcom Inc. dropped 1.1%.
The S&P 500 saw its second-biggest bottom-to-top intraday reversal - at 3.4% - since the Trump administration paused implementing sweeping additional tariffs on dozens of countries in April 2025, according to data compiled by Bloomberg.
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Options traders whipsawed by the market's recent gyrations remain anxious that more volatility may arrive in the coming days, starting with Wednesday's report on consumer prices. Following the latest selloff, traders are questioning whether AI stocks are heading for another leg lower, or just a shakeout for pricey megacap stocks.
"My head was spinning all day," said Mary Ann Bartels, chief investment strategist at Sanctuary Wealth, which has been telling clients to buy the dip on tech stocks. "At one point when the Nasdaq 100 slid 4%, I couldn't even figure out why. It could be deleveraging after a big run. Middle East tensions? Rate-hike fears? Inflation worries? All of the above? Know one really knows."
Selling gathered steam mid-day after President Donald Trump said the US must respond after he blamed Iran for shooting down an American military helicopter. Looking to Wednesday, economists project the inflation report will show an annual increase in consumer prices of 4.2% for May, compared with a 3.8% jump in April.
An equal-weighted version of the S&P 500 - a proxy of market breadth - rose 0.8%, signaling strength beyond chipmakers. Information technology stocks were among Tuesday's biggest laggards, with a basket of the so-called Magnificent Seven companies dropping 1.3%, led by losses in Microsoft Corp., Tesla Inc. and Apple Inc.
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Tuesday's shift out of tech names came as nine of the S&P 500's 11 sectors traded higher, led by defensive industries. Tech and energy were the lone decliners. The real estate sector rose 2.1%, while health care gained 1.3% and utilities added 1.1%. Those are areas where companies tend to have comparatively low valuations and offer robust dividends. The S&P 500 Dividend Aristocrats Index - consisting of companies that have increased payouts for at least 25 straight years - climbed 1.8%.
"Exuberance has been building for months, pushing stocks to one record after the next, so anything perceived to be negative for equities - from higher inflation to even the potential for rate hikes - will knock the market off its footing after a historic run," said John Cunnison, chief investment officer at Baker Boyer Bank. His firm is underweight tech shares and overweight value.
"Fears of another hot inflation print this week on the back of escalating Middle East tensions has revived fears that the threat of rate hikes may eat into Corporate America's profit margins, and thus, stock prices," he said.
Concern about sticky inflation and the pressure on the Federal Reserve to contain it briefly pushed the Cboe Volatility Index, or VIX, above 20, a level that signals concern among traders. With Elon Musk's SpaceX expected to go public later this week, the prospect of another trillion-dollar-plus company hitting the market may be forcing investors to reposition their portfolios at the cost of their tech stocks, analysts say.
"Investors are taking profits in some of the leading AI names after an incredible run," said Tim Chubb, chief investment officer at Girard, a Univest Wealth Division. He said his firm has trimmed exposure to megacap tech shares while adding exposure to financials and payment companies. "As SpaceX goes, so does the market."
Robust jobs data has put extra focus on the inflation figures as traders speculate the Fed's next move will be to hike interest rates. The S&P 500 is expected to swing 0.9% in either direction on Wednesday, based on the cost of at-the-money puts and calls, according to Citigroup Inc. That compares to an average realized move of just 0.5% over the past 12 months.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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