Tech Sector Tumble Leads S&P 500 to Worst Week Since April

S&P 500 falls nearly 2% for worst week since mid-April (NYSEARCA:SPY)

The S&P 500 (SP500) on Friday retreated 1.97% for the week to end at 5,505.00 points, posting losses in three out of five sessions. Its accompanying SPDR S&P 500 ETF Trust (NYSEARCA:SPY) slipped 1.96% for the week. Wall Street's benchmark index posted its worst weekly performance since mid-April, and is now down 2.90% from its all-time intraday high of 5,669.67 points. The gauge also snapped a two-week win streak. The primary driver of this week's loss in the S&P 500 (SP500) was a continued rotation out of technology stocks. The unwinding of the "tech trade" was sparked by last Thursday's soft consumer inflation report. The data on consumer prices followed the June nonfarm payrolls report earlier this month which showed slowing jobs growth and an uptick in unemployment. With inflation moving in the right direction and the highly resilient labor market finally showing signs of cracking, investors have gained the confidence to start moving out of technology names and into other assets such as defensive and value sectors and small-cap stocks. The barometer for the latter - the Russell 2000 (RTY) - climbed 1.50% for the week. "Markets have seen a sharp rotation following last week's softer inflation report. The market is now pricing a near certainty of a Federal Reserve rate cut in September," Keith Lerner, co-chief investment officer at Truist, said on Thursday. "Even with the sharp gains of the past week, aided by the increased probability of the Fed lowering interest rates, relative performance (in small caps) still appears to have upside. Small caps remain below the 2021 peak and are coming off one of the most extreme underperformance periods in history," Lerner added. Gains in technology stocks on the back of the artificial intelligence craze - especially in the heavyweight "Magnificent 7" club - has been one of the primary drivers of Wall Street's bull run. With traders now rotating out of them, the benchmark S&P (SP500) has understandably come under pressure. Though the S&P (SP500) fell ~2% this week, the S&P 500 equal weight index and its accompanying Invesco ETF (RSP) has seen a much smaller decline of 0.09% and 0.08%, respectively. The equal weight index includes the same constituents as the capitalization weighted S&P 500, but each company in the equal weight gauge is allocated a fixed weight, meaning that the likes of Nvidia (NVDA) carry the same heft as Dollar Tree (DLTR). Deutsche Bank's Jim Reid on Thursday highlighted that "the significant correction" in the tech-heavy Nasdaq Composite (COMP:IND) in the last week has "hardly made a dent in the long-term trend." The Nasdaq (COMP:IND) lost 3.65% from Monday to Friday, but is still up 18.09% YTD. "So, if this is a genuine rotation there could be a long way to go. An interesting summer awaits," Reid added. The "Magnificent 7" will get a big test over the next two weeks, as several of the members are slated to report quarterly results amid an overall deluge of earnings reports. The club notched an average fall of 4.6% this week. "While the bulk of second-quarter earnings growth will likely be driven by big tech companies amid robust demand for artificial intelligence, trends are generally favorable across the S&P 500, where we expect earnings to grow 10-12% year-over-year, the fastest pace since the first quarter of 2022," Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, said on Thursday. Turning to the weekly performance of the S&P 500 (SP500) sectors, six of the 11 ended in the red, with Technology sliding more than 5%. Energy and Real Estate topped the gainers. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from July 12 close to July 19 close: For investors looking into the future of what's happening, take a look at the Seeking Alpha Catalyst Watch to see next week's breakdown of actionable events that stand out.

Global tech glitch sinks Wall Street as S&P 500 logs worst week since April

U.S. stocks closed lower, extending a slump that left Wall Street with its worst week since April. The S&P 500 fell 0.7% Friday, its third straight drop since setting a record high on Tuesday. The Dow Jones Industrial Average sank 0.9%, and the Nasdaq composite lost 0.8%. The losses came as businesses around the world scrambled to contain the effects of a disruptive technology outage. Cybersecurity firm CrowdStrike sank after saying the issue believed to be behind the global outage affecting flights, banks and medical offices lay in a faulty update sent to computers running Microsoft Windows. Treasury yields ticked higher. CrowdStrike's stock plunged more than 15% as soon as trading began, but it then pared its loss to a drop of 12.2%. Microsoft was down 0.9%. Richard Stiennon, a cybersecurity industry analyst, called it a historic mistake by CrowdStrike, but he also said he did not think it revealed a bigger problem with the cybersecurity industry or with CrowdStrike as a company. "We all realize you can fat finger something, mistype something, you know whatever -- we don't know the technical details yet of how it caused the bluescreen of death" for users, he said. "The markets are going to forgive them, the customers are going to forgive them, and this will blow over." Stocks of other cybersecurity firms climbed, including an 8.1% jump for SentinelOne and a 1.7% rise for Palo Alto Networks. The outage hit check-in procedures at airports around the world, causing long lines of frustrated fliers. That initially helped pull down U.S. airline stocks, but they quickly pared their losses,. United Airlines flipped to a gain of 1.6%, for example. It said many travelers may experience delays, and it issued a waiver to make it easier to change travel plans. American Airlines Group slipped 0.8%, and Delta Air Lines was unchanged. Corporate profit reports were also moving stock prices, and Comerica dropped 10.5% even though it delivered better earnings for the spring than analysts expected. The bank said it received a preliminary notification that it won't continue as the issuer of the Direct Express debit card for about 4.5 million federal benefit recipients, a program it's had since 2008. American Express sank 3.3% after its revenue for the latest quarter fell short of analysts' forecasts. It was one of the largest reasons for the Dow's drop, despite reporting stronger profit than expected. Netflix was flipping between gains and losses after the streaming giant reported stronger profit for the latest quarter than analysts expected. It was most recently down 2.1%. The broad S&P 500 index is on track for its worst week since April, even though it set an all-time high on Tuesday. At first, pressure built on the Big Tech stocks that have been the market's biggest winners, amid criticism they simply grew too expensive. Nvidia, for example, is up nearly 140% for the year so far amid Wall Street's frenzy around artificial-intelligence technology, even after falling 2.5% Friday. Such declines pack a punch on the S&P 500 because the index gives more weight to stocks with larger values, and Big Tech companies are Wall Street's most massive by far. Gains for some previously unloved areas of the market, including smaller stocks and companies whose profits are closely tied to the economy's strength, had helped to offset some of those declines. "This rotation can continue, but it doesn't always have to be where they're rising faster, it could be because they are falling less," according to Brian Jacobsen, chief economist at Annex Wealth Management. On Thursday, Wall Street saw a washout that pulled down most stocks across the market, including beaten-down smaller companies and what are called "value" stocks. The Russell 2000 index of smaller stocks was on track for a third straight drop Friday after slipping another 0.5%. That follows a huge five-day run where it shot up 11.5%. Besides the surges for Big Tech stocks, hopes for coming cuts to interest rates by the Federal Reserve have also buoyed the U.S. stock market and sent Treasury yields lower. Yields ticked higher in the bond market on Friday. The yield on the 10-year Treasury rose to 4.23% from 4.20% late Thursday. In markets abroad, indexes were mostly lower in Europe and Asia. Stocks fell 2% in Hong Kong and rose 0.2% in Shanghai after Chinese officials briefed reporters in Beijing on the outcome of a top-level meeting of the ruling Communist Party. They provided some details of the sweeping blueprint it endorsed for making China a leader in technology, building its financial markets and raising living standards. ___ AP Writers Matt Ott, Elaine Kurtenbach and Alan Suderman contributed.