This stock market rally in the first half of 2023 was built on the back of technology stocks, as investors bet on a resilient US consumer and hype surrounding artificial intelligence to keep the shares soaring.
But that support has wobbled all month, as a Federal Reserve bent on keeping rates above 5% well into next year and flagging consumer confidence triggered a selloff that just shoved tech stocks into a correction. The broader S&P 500 Index dropped 1.5% Tuesday to the lowest since June 7.
The brunt of the selling has been in tech, where the bruising stretch left the S&P 500 Information Technology Index down more than 10% from its July high. The gauge also just clocked its third 1% down session in the last five. Meanwhile, confidence among consumers fell to a four-month low, showcasing cracks in the economy’s main engine.
A hawkish Fed hasn’t been a problem for stocks for most of the year, but the market mood is souring as officials continue to signal that rates might need to stay higher for longer than investors had expected. The fear is that the central bank’s zeal to curb inflation could break the economy, which combined with a wary consumer would leave the market vulnerable to a reversal as megacap tech giants collapse.
“The worry about rising yields hasn’t dissipated — it’s become more severe, and even though tech stocks have been able to hang on, you’re starting to see the cracks,” said Quincy Krosby, chief global strategist at LPL Financial. “US consumers — a very important element of the market — are getting more worried, and it’s not what the market wants to see.”