The Nasdaq Composite slipped again on Wednesday as Wall Street continued to shed some of the year’s top performers like those tied to artificial intelligence.
The Nasdaq Composite was down 0.7%. The Dow rose about 16 points, or less than 0.1%. The S&P 500 was down 0.2%. The Dow moved a few small steps closer to its Dec. 4 closing high of 45,014.04.
The yield on the 2-year Treasury note was down to 3.74%. The 10-year yield was down to just under 4.3%.
Just like on Tuesday, exchange-traded funds focused on risk, growth, and momentum struggled, while low volatility and dividend stocks rallied. That said, the selling lost some steam in the early afternoon, and the Nasdaq ended the session well above its lows.
Mizuho’s Daniel O’Regan chalks up the Nasdaq’s slide to profit-taking in AI stocks, as well as drops in related sectors like non-profitable tech and meme stocks. He notes trading volumes were light for most sectors outside of technology.
“Tech themes are lagging again, however, this feels more like a continuation of the rotation/unwind that started last week, not some new fundamental breakdown,” notes O’Regan. “It’s August, volumes are light, and when everyone owns the same AI winners, even small selling can create outsized moves.”
Citi strategist Scott Chronert writes he and his team are fielding questions about what’s behind the slide. He notes there’s always a risk of 5% draw down, as it’s “a normal course of market progressions and can happen without a discernible catalyst.”
Now, a 10% draw down would need a trigger, the likes of which Chronert hasn’t observed in the past few days. He thinks earnings in the third and fourth quarter are the biggest concern, if AI stocks disappoint or tariffs hit harder than they did in the second quarter.
“Our call headed into [the second half] has been constructive but with an expectation for ongoing risk of bouts of volatility,” Chronert writes. “Thus, we want to be prepared to buy into a more material draw down, should it unfold.”