AI Selloff Pressures Major Indexes as Valuation Concerns Resurface Across Mega-Cap Tech

The stock market pulled back as renewed pressure on the AI trade curtailed yesterday’s tentative rotation and reintroduced volatility across mega-cap technology names. The DJIA (-0.5%) briefly touched a fresh intraday record early in the session before reversing lower, while the S&P 500 (-1.1%) and Nasdaq Composite (-1.7%) absorbed more pronounced losses as selling pressure intensified through the day.

Broadcom’s sharp decline underscored the fragility of sentiment across richly valued tech leaders. Despite delivering an earnings beat and issuing upside guidance, Broadcom (AVGO 359.90, -11.44%) suffered a double-digit drop, reinforcing concerns that many mega-cap technology stocks are priced for near-flawless execution and remain vulnerable to abrupt downside when expectations are not meaningfully exceeded. Oracle (ORCL 189.59, -4.66%) experienced a similar valuation-driven retreat earlier in the week, helping set the tone for the broader tech pullback.

The information technology sector (-2.9%) surrendered its week-to-date gains, weighed down by Broadcom, NVIDIA (NVDA 175.08, -3.23%), and other semiconductor names. The PHLX Semiconductor Index slid 5.1%, marking one of its sharpest daily declines in recent weeks. While six S&P 500 sectors finished lower, technology was the only group to post a loss exceeding 1.0%.

Weakness also spread to communication services (-0.7%), pressured by declines in Alphabet (GOOG 310.56, -1.00%) and Meta Platforms (META 644.27, -1.29%). The Vanguard Mega Cap Growth ETF fell 1.5%, leaving the market-weighted S&P 500 trailing the equal-weighted index, which declined a more modest 0.7%. Even with the Dow briefly reaching another record high, tech-led selling ultimately broadened losses across the major averages.

Despite the risk-off tone, selective rotation into defensive and cyclical areas provided pockets of support. Consumer staples (+0.9%) led the advancing sectors, buoyed by Walmart (WMT 116.65, +0.98%) reaching a new record high. Costco (COST 884.49) finished flat after reporting earnings that exceeded expectations.

lululemon athletica (LULU 205.08, +9.67%) emerged as the top-performing stock in the S&P 500 following a strong earnings report, even as the company announced its CEO will step down effective January 31. Lululemon’s rally helped the consumer discretionary sector (+0.1%) eke out a gain. Health care (+0.3%), materials (+0.2%), and financials (+0.1%) also finished modestly higher, reflecting cautious repositioning rather than broad conviction.

Outside the large-cap space, the Russell 2000 (-1.5%) and S&P Mid Cap 400 (-1.3%) gave back some of their recent outperformance, signaling a pause in the rotation toward smaller-cap stocks amid the weaker overall sentiment.

On the policy front, Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid elaborated on their dissents from Wednesday’s 25-basis-point rate cut. Schmid cited ongoing inflation risks, while Goolsbee emphasized a desire to avoid front-loading rate reductions, despite maintaining a generally dovish outlook for 2026. Neither official will be voting members next year, limiting the immediate policy implications of their comments.

Looking ahead, attention now turns to Tuesday’s jobs report and Thursday’s CPI release. Both data points are likely to shape near-term Fed expectations and influence whether the current rotation away from mega-cap technology deepens or stabilizes in the sessions ahead.

Our portfolio – FTInvest 11 ended the session modestly lower, declining 0.52% to close at 928.20. The pullback came amid renewed pressure on growth and technology stocks, which weighed on broader market sentiment and prompted selective profit-taking after recent gains.

Despite the daily decline, the portfolio demonstrated relative strength over the course of the week. FTinvest 11 finished the week up 0.52%, clearly outperforming the S&P 500, which declined 0.63% over the same period. This divergence underscores the portfolio’s more resilient positioning during a week characterized by volatility, valuation concerns in mega-cap technology, and uneven sector leadership.

The ability of FTinvest 11 to remain positive on a weekly basis, even as the benchmark moved lower, reflects continued strength in individual holdings and a balanced exposure that helped offset weakness in rate- and sentiment-sensitive areas of the market. As investors reassess growth expectations and positioning following recent central bank developments, FTinvest 11 enters the new week with a constructive relative performance backdrop.