S&P 500 and Nasdaq decline as technology stocks come under pressure

US stock indexes retreated on Tuesday as technology shares lost momentum, with investors turning more cautious ahead of inflation data and the highly anticipated initial public offering of SpaceX later this week.

Artificial intelligence-related stocks came under heavy selling pressure last Friday after disappointing guidance from Broadcom raised concerns about elevated valuations across the sector, particularly among semiconductor companies that have delivered strong gains this year.

Chipmakers declined, with shares of Intel, Broadcom, and Micron Technology falling between 1.7% and 2%, while the Philadelphia Semiconductor Index dropped 2% after gaining nearly 3% earlier in the session.

The technology sector within the S&P 500 also lost about 1.7%, as Nvidia fell 1.2%, Apple dropped 3%, and Microsoft declined 1.1%.

Jordan Rizzuto, Chief Investment Officer at GammaRoad Capital Partners, said technology stocks have been the primary driver of growth and market momentum during the recent rally and are also the most sensitive to interest-rate movements. As uncertainty surrounding the rate outlook increases, investors are taking profits in the sector.

Inflation data and the SpaceX IPO in focus

Friday’s stronger-than-expected US jobs report increased concerns that the Federal Reserve could raise interest rates later this year.

According to CME’s FedWatch tool, traders currently assign a 43% probability to a 25-basis-point rate hike in December.

Investors are now awaiting May consumer price index data, due on Wednesday, for further clues about the impact of higher energy prices linked to the Iran conflict on US inflation.

By 11:00 a.m. New York time, the Dow Jones Industrial Average had risen 131.61 points, or 0.26%, to 50,917.62. Meanwhile, the S&P 500 fell 16.10 points, or 0.22%, to 7,389.63, and the Nasdaq Composite dropped 176.07 points, or 0.68%, to 25,753.60.

At the same time, SpaceX’s expected market debut, with a projected valuation of $1.75 trillion, is being viewed as a key test for US equities amid concerns that investors may be overvaluing high-growth technology companies.

SpaceX aims to raise $75 billion through its IPO, making it the largest public offering in history.

Paul Nolte, Senior Wealth Advisor and Market Strategist at Murphy & Sylvest, said mutual funds and exchange-traded funds will likely need to make room for SpaceX shares within their portfolios.

In individual stock performance, advancing stocks outnumbered decliners by a ratio of 1.72-to-1 on the New York Stock Exchange and 1.32-to-1 on the Nasdaq.

The S&P 500 recorded 26 new 52-week highs and six new lows, while the Nasdaq posted 133 new highs and 84 new lows.