Nasdaq 100 futures slide 2% as megacap tech rout deepens

Nasdaq 100 futures tumbled 2 percent on Tuesday, extending a selloff driven by megacap technology stocks and rising bond yields that pushed the S&P 500 1.8 percent below its all-time high set earlier this month.

"I'm getting concerned because several indicators now suggest the stock market is substantially extended and could require some period of consolidation," Jim Paulsen, former chief strategist at The Leuthold Group, said. He flagged a potential correction of 10 percent to 20 percent in the coming months, though he noted the AI trade could rally further before any downturn.

The S&P 500 fell 0.4 percent to 7,472.79 on Monday, while the Nasdaq Composite slumped 1.3 percent to 26,166.60. The Dow Jones Industrial Average bucked the trend, adding 0.3 percent to 51,712.71. The Russell 2000 index of smaller companies rose 0.8 percent to 3,004.40, highlighting the narrowness of the selloff as investors rotated out of large-cap growth into value and small-cap names.

Alphabet dropped 5 percent on concerns over high-profile AI-related executive exits, while Amazon lost nearly 5 percent, Meta fell 2.3 percent and Microsoft declined 3 percent. SpaceX plunged 16 percent, extending its three-day slide to nearly 24 percent after its post-IPO rally reversed, and also announced a senior unsecured notes offering. Palantir Technologies fell nearly 7 percent to $119.50, its lowest close in more than a year, as broader software and AI-disruption worries weighed.

Chip stocks offered some relief, with Micron rising nearly 7 percent ahead of Wednesday's earnings — a key test of whether AI infrastructure spending can sustain the rally that has lifted its shares more than 300 percent this year. AMD gained 2 percent and Intel added 5 percent.

The selloff coincided with three developments. The 10-year US Treasury yield climbed to around 4.51 percent, edging closer to the key 4.5 percent threshold, while the 2-year yield hit its highest level since February 2025 after last week's hawkish Fed meeting. Oil prices fell roughly 3 percent after US-Iran talks in Switzerland produced a 60-day roadmap toward a final deal, with Brent crude settling at $77.90 a barrel and WTI at $74.82. Mohamed El-Erian flagged the unusual setup of rising bond yields and falling oil prices, citing expectations for a more hawkish Fed and inflation concerns.

The divergence between the stock market and the broader economy is becoming more extreme, Paulsen said. Information technology stocks in the S&P 500 are up 33 percent this year versus the broader index's 10 percent gain, while real GDP growth attributable to investment spending on "New Era" companies has risen to 8 percent year-over-year, compared with 1.1 percent average growth across the rest of the economy. Consumer sentiment has dropped to an all-time low even as equities hover near records, he noted, while investor stock allocations have risen to around 55 percent of portfolios — levels last seen before the dot-com bubble burst.

The selloff also spilled into cryptocurrencies, with Bitcoin slipping toward $63,000, down 3.3 percent on the week, as the same AI-driven tech trade that has carried equities to records began to wobble. The Coinbase premium, a proxy for US institutional demand, has widened to the downside, signaling tepid buying from American institutions.

Traders are now looking to Thursday's personal consumption expenditures inflation report for clues on the Fed's next move, with any upside surprise likely to amplify pressure on rate-sensitive growth stocks. Micron's earnings on Wednesday will serve as the next major test of the AI trade's sustainability.

This article is for informational purposes only and does not constitute investment advice.