Nasdaq Index: Tech Stocks Plunge as Software Sector Enters Bear Market Today

Market Overview: Tech Weakness Dominates Mid-Session Trading

The major U.S. stock indexes are lower at mid-session on Thursday, with investors choosing to react more to the negativity surrounding Microsoft’s earnings than the positive results from Meta.

At 18:00 GMT, the Dow Jones Industrial Average is trading 48780.14, down 235.46 or -0.48%. The S&P 500 Index is at 6912.48, down 65.55 or -0.94% and the Nasdaq Composite is trading 23472.146, down 385.302 or -1.62%.

However, I think the biggest impact on the market was the news that the iShares Expanded Tech-Software Sector ETF (IGV), which mirrors the performance in the sofhttps://www.fxempire.com/indicestware sector, dropped into bear market territory Thursday. It’s down over 6% today, which places it 22% below its recent high, fitting the 20% loss criteria for a bear market.

Microsoft’s Steep Decline Leads the Selloff

With the market down, let’s review the negative factors. Microsoft, which is a component of the Dow, S&P, and Nasdaq, is down 12% at the mid-point. This marks its worst session since March 2020. More than that, it is a prominent member of the “Magnificent Seven,” which magnifies today’s performance. In today’s sensitive trading environment with so many opportunities, investors don’t stick around too much if they smell smoke. Short-term traders just sell and move on to the next opportunity. This could be the case with Microsoft.

Soft Guidance Triggers Investor Exodus

The decision to sell is not random either. With the release of banking and Netflix earnings the first week of the season, investors made it clear that they aren’t too interested in the past, but in future performance—and Microsoft just didn’t deliver. The company stoked the flames after the close on Wednesday when it issued soft guidance on operating margin for the fiscal third quarter. This came after it had reported that cloud growth slowed in the fiscal second quarter, creating a double whammy for investors.

Contagion Spreads to AI-Related Stocks

After Microsoft’s plunge, herd theory kicked in as fears swept among related companies tied together by artificial intelligence. Investors also shed shares of ServiceNow, which beat expectations but still dropped 12% on Thursday. Profit-taking and position-squaring also pressured Oracle and Salesforce, which lost 5% and 8%, respectively.

On a positive note, Meta jumped 7% on a stronger-than-expected first-quarter sales forecast, and Caterpillar rose more than 1%.

Apple Faces High Expectations Into the Close

The damage has been done, however, and unless there is a dramatic turnaround into the close, we’ll be headed into Apple’s earnings after the close on a weak note. The pressure may be on the communications giant to reveal “blowout” numbers because that is what the market is calling for right now. Investors aren’t just saying, “show me the numbers”—they are selling if they don’t get them and diversifying into stocks that offer better future returns.

Technical Analysis: Nasdaq Tests Key Support

Technically, the reaction in the Nasdaq Composite (IXIC) has been fast and steep. Just one day after coming within a stone’s throw of overcoming an important trend line and testing the record high, the index dropped into the 50-day moving average at 23,312.70. The move attracted enough buyers to trigger a technical bounce, but it won’t bring relief to investors until it recovers the uptrend line at 23,962 today. Without that show of strength, the tech-weighted index remains vulnerable to another test of the 50-day MA. But next time, it may not be support, but the trigger point for a further decline.

More Information in our Economic Calendar.