Tech Stocks Drag Market Down; S&P 500 and Nasdaq Hit Hard

Stocks broadly declined for the third consecutive day on Friday, with technology stocks exerting significant downward pressure on the broader market. Goldman Sachs strategists issued a cautionary note, suggesting that the summer could bring further cooling for the previously high-flying stock market. This warning comes amidst growing concerns over geopolitical tensions and economic uncertainties.

The S&P 500 fell 0.7%, reflecting a widespread sell-off, while the tech-heavy Nasdaq dropped 0.8%. The Dow Jones Industrial Average, which tracks 30 large publicly-owned companies in the U.S., lost 0.9%, translating to a 380-point decline. The Russell 2000, which focuses on smaller companies, fell 0.6%. Notably, the S&P (down 2% since last Friday) and Nasdaq (-3.7%) experienced their worst weeks since mid-April, driven by significant losses in major technology companies. The Dow and Russell, however, managed to stay in positive territory for the week, benefiting from their relatively lower exposure to big tech firms like Apple, Microsoft, and Nvidia, which saw their shares decline by 3%, 4%, and 8%, respectively.

Nvidia, which saw a 3% drop on Friday alone, led a particularly rough week for semiconductor stocks. These stocks had previously enjoyed substantial gains driven by excitement around generative artificial intelligence. The iShares Semiconductor ETF (SOXX) plummeted 9% this week, with notable declines in prominent Silicon Valley chip makers like Advanced Micro Devices (down 16%) and Broadcom (down 6%). The sector struggled following reports of potential U.S. restrictions on Chinese chip capabilities and former President Trump’s skepticism regarding American protection of Taiwan, a critical hub for chip manufacturing.

CrowdStrike, a cybersecurity firm recently associated with wide-ranging technological outages, emerged as the biggest loser among S&P stocks on Friday, with its shares tumbling 11%. Other significant decliners included Intel, which saw a 5% loss, and Tesla, which dipped 4%. These declines underscored the broader vulnerability of the technology sector amidst heightened geopolitical and economic risks.

The outlook remains uncertain as to whether this week’s stock decline will develop into a more prolonged slump. Goldman Sachs strategists highlighted several factors contributing to their cautious outlook for the summer, including geopolitical risks tied to the upcoming U.S. presidential election, potential stalling of economic growth, and the likelihood that stock prices have already accounted for the expected benefits of lower interest rates anticipated in the U.S. by September.

Despite this week’s notable decline, such sell-offs are not uncommon, particularly after extended periods of market gains. These periods often see fund managers and individual investors cashing in profits and rebalancing their portfolios. Year-to-date, the Dow, S&P, and Nasdaq remain up by 9%, 17%, and 20%, respectively, all on pace to surpass their historical annual returns. The S&P has experienced similar declines 16 times over the past two years, during which it gained 45%, breaking its previous record highs. Similarly, the SOXX is up 24% year-to-date and nearly 90% over the last two years, reflecting the sector’s overall resilience despite recent setbacks.

Looking ahead, next week will be crucial as it marks the height of earnings season. Major companies such as Alphabet, Amazon, Tesla, Visa, and Coca-Cola are set to report their second-quarter results. According to FactSet, analysts project that Q2 will deliver the best annual profit growth for the S&P since 2021, providing a potential catalyst for market movements amidst an environment fraught with uncertainty.