Nasdaq 100 futures drop 1.08% as tech selloff deepens

Nasdaq 100 futures slid more than 1% on Wednesday, extending a two-day selloff in technology stocks.

Nasdaq 100 futures fell 1.08% on Wednesday as software and cybersecurity stocks extended losses, while Dow futures edged up 0.28% in a sign of sector rotation.

"If recent data trends continue, it may soon be appropriate for policy to act to address the growing risk of persistently elevated inflation," Cleveland Fed President Beth Hammack said Tuesday, warning the central bank's benchmark rate "may not be restrictive."

S&P 500 futures slipped 0.47%, extending Tuesday's 0.20% decline that pushed the index off its record high. Software stocks led the selloff, with Datadog falling more than 8%, IBM dropping more than 6% and ServiceNow sliding more than 4%. Cybersecurity names also retreated, with Palo Alto Networks down 6% despite reporting better-than-expected fiscal Q3 earnings. The divergence between the Dow and the Nasdaq underscored a rotation out of growth names into value.

The selloff comes as traders reassess the durability of the AI-driven rally that pushed the S&P 500 to nine straight weekly gains through May. With the Fed indicating it may need to hike rates as soon as December — money markets now price in a 25 basis-point increase — and US-Iran tensions keeping oil above $93 a barrel, the macro backdrop is turning less favorable for high-multiple tech stocks.

The weakness in growth stocks coincided with an escalation in Middle East hostilities. US and Iranian forces clashed overnight, with the US military striking a communications tower on Iran's Qeshm island after coming under missile and drone attack. WTI crude rose more than 1% to a 1.5-week high above $90 a barrel, adding to inflation concerns that pushed the 10-year Treasury yield up 3.7 basis points to 4.481%.

Breadth data from Tuesday showed the selloff was broad but not panicked. Decliners outpaced advancers on the NYSE by about 1.04-to-1, while the S&P 500 logged 27 new 52-week highs and 12 new lows. Volume on US exchanges totaled 23.9 billion shares, above the 20-day average of 19.36 billion. The VIX rose 2.09% to 16.10, still below its long-term average but climbing from recent lows.

Chipmakers provided a partial offset, with Western Digital up more than 6%, Intel gaining more than 4% and Broadcom rising more than 5% ahead of its fiscal Q2 earnings report. Marvell Technology added more than 6%, extending a 32% surge from Tuesday after Nvidia CEO Jensen Huang predicted the company would be the next to hit a $1 trillion valuation.

The US dollar index held near 99.05, while gold slipped 0.41% to $4,519.28 an ounce as a firmer dollar and rising crude weighed on the precious metal.

Investors now turn to Friday's May non-farm payrolls report for fresh clues on the labor market. Several FOMC members are scheduled to speak this week, including Chair Jerome Powell.

This article is for informational purposes only and does not constitute investment advice.