Tech Stocks Lead Wall Street Decline as Market Sentiment Shifts

US technology stocks experienced a significant downturn on Friday, marking a notable shift in investor sentiment away from the sector that has dominated market gains throughout the year. The S&P 500 fell 1.6 per cent during Friday afternoon trading, whilst the tech-heavy Nasdaq witnessed a steeper decline of 2.2 per cent.

The decline was particularly pronounced among the influential ‘Magnificent 7’ technology companies. Tesla, led by Elon Musk, saw its shares plummet 4.4 per cent, whilst semiconductor giant Nvidia dropped nearly 3 per cent. Other tech behemoths, including Apple, Microsoft, Amazon, and Meta, each recorded losses exceeding 2 per cent.

The tech sector’s remarkable rally earlier this year was fuelled by optimistic projections surrounding artificial intelligence and its potential to drive demand across various technological components. These gains intensified following Donald Trump’s election victory in November, as investors anticipated business-friendly policies under his upcoming administration.

Citigroup analysts have issued a cautionary note, despite maintaining their forecast of a 10 per cent rise in the S&P 500 by the end of next year. They emphasised the likelihood of increased market volatility, pointing to the substantial gap between stock price appreciation and corporate profit growth as a potential concern.

The S&P 500 maintains a impressive year-to-date gain of approximately 25 per cent, even after Friday’s pullback. Howard Silverblatt from S&P Dow Jones Indices noted that the Magnificent 7 tech stocks have contributed to roughly half of the index’s total returns, including dividends, this year.

The Federal Reserve’s recent forecast adjustment, reducing expected rate cuts from four to two quarter-point cuts next year, has added to market uncertainty. This revision has particularly affected growth stocks, as higher interest rates typically diminish the attractiveness of such investments.

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