Nasdaq 100: Tech Stocks Lose Momentum as Inflation Test Looms

Dow Reaches Record High While Tech Stocks Pause Ahead of Inflation Data

U.S. stocks traded in mixed fashion shortly after the middle of Wednesday’s session as investors balanced strength in traditional blue-chip stocks against weakness across several areas of technology. The Dow Jones Industrial Average climbed more than 200 points and pushed to a fresh record high, helped by lower oil prices and buying in defensive value names.

Meanwhile, the broader market struggled to find a clear direction as investors stepped back from some of the market’s biggest winners in semiconductors and software. The S&P 500 hovered near the flat line, while the Nasdaq Composite also traded little changed as traders locked in gains ahead of Thursday’s closely watched April Personal Consumption Expenditures inflation report.

The session developed into a clear split market. Buyers continued moving into blue-chip and defensive names while some of the market’s strongest growth stories started slowing down. The market did not look like it was under broad selling pressure. Instead, it looked more like traders pulling money out of crowded trades and shifting into areas where valuations looked more comfortable.

Falling Oil Prices Help Support Dow Stocks

U.S. crude oil prices dropped roughly 5% to around $88 per barrel after Iranian state media reported that the country remained committed to restoring commercial traffic through the Strait of Hormuz back to levels seen before the recent conflict. The headlines eased supply concerns and crude reacted quickly as traders started stripping out some of the geopolitical premium that had been supporting prices.

The White House later pushed back against the report and called it a complete fabrication. But even with conflicting headlines hitting the market, the selling in crude largely stayed in place. That suggested traders were more interested in taking risk premium off the table than waiting around for additional clarity.

Lower oil prices then fed directly into stocks that tend to benefit from easing energy costs. Industrial names and more traditional value stocks found buyers while the market continued shifting away from several technology leaders.

Software and Cybersecurity Stocks Lead Technology Lower

Cybersecurity stocks turned into one of the weakest areas of the market after enterprise software company Zscaler delivered weaker-than-expected revenue guidance. The company topped current earnings and profit estimates, but traders were not paying much attention to what just happened. The focus shifted quickly toward the outlook and whether growth is beginning to slow.

Zscaler shares plunged nearly 25% and the selling spread quickly across software and cloud security names. CrowdStrike and Palo Alto Networks also moved lower as traders started pulling back from a group that had seen strong upside momentum. The move also raised questions about whether investors had become too comfortable paying premium prices for software names.

The pressure spread into other areas of technology as traders reduced exposure ahead of earnings reports from Snowflake and Synopsys later in the day. After months of aggressive gains, some buyers appeared less willing to keep chasing software stocks at elevated prices.

Semiconductor Stocks Slow After Leading the Rally

Micron, which surged more than 19% during Tuesday’s session and crossed a $1 trillion market value level for the first time, traded only modestly higher after giving back earlier gains. The stock rallied sharply following a bullish report from UBS that argued the company could continue benefiting from long-term agreements tied to artificial intelligence growth.

Still, several chip stocks came under pressure as investors questioned whether valuations have moved too far too fast. Qualcomm dropped nearly 10% and ranked among the weakest performers in the group. Nvidia fell despite reports of an aggressive $150 billion investment pipeline tied to infrastructure expansion in Taiwan. AMD also traded lower, while GlobalFoundries and Wolfspeed ranked among the weaker performers in the broader technology space.

The selling does not necessarily mean traders are giving up on the artificial intelligence story. Buyers have repeatedly stepped into these names on pullbacks this year. But after months of strong gains, some traders looked willing to lock in profits and step back for a closer look.

Bank Stocks Add Another Area of Pressure

JPMorgan shares fell after CEO Jamie Dimon said the bank could spend up to $20 billion on acquisitions over the next several years, raising some questions about future capital allocation. The selling was not enough to change the direction of the broader market, but it added another pressure point during a session where technology stocks were already losing momentum.

Daily Nasdaq Composite (IXIC) Technical Analysis

The Nasdaq Composite (IXIC) is putting in a mixed performance late Wednesday. Despite a somewhat slow performance, there is no sign of a top yet with the price action suggesting bullish traders are just taking a breather.

A higher-high, lower-close would have sent a stronger signal that the selling is greater than the buying at current price levels.

A trade through 26725.29 will signal a resumption of the uptrend. The main trend changes to down on a move through the swing bottom at 25701.44. The near-term range is 25701.44 to 26725.29. The first potential support is its pivot at 26213.37.

The upside is still unknown because there is no resistance, but the downside potential is pretty clear if the swing bottom at 25701.44 fails as support. Only then will the bears have a shot at a drop into the 50-day moving average at 24103.74 and the 200-day MA at 23140.15.

Short-Term Market Forecast

Thursday’s PCE inflation report now becomes the next test for this rally and traders will probably care more about the reaction than the headline number itself. Technology and semiconductor stocks have done much of the heavy lifting for months and Wednesday showed some early signs of money rotating underneath the surface.

If inflation comes in soft, buyers could move right back into semiconductors and growth stocks and treat Wednesday’s selling as little more than a pause after a strong run higher. But if inflation comes in hot, traders may start taking a harder look at the areas that have been carrying this market for months.

Wednesday looked more like a breather than a top. The question now is whether technology buyers come back quickly or whether the rest of the market has to start carrying more of the load.

More Information in our Economic Calendar.