Tech Stocks Tumble: Nasdaq Decline Signals Market Correction

The tech-heavy Nasdaq Composite index suffered its worst day since October 2022 on Wednesday, as large-cap technology stocks plunged following disappointing earnings reports. The index lost 654 points, or 3.6%, in its biggest one-day drop since falling almost 3.9% on October 7, 2022. In terms of points, it was the index’s worst day since March 16, 2020, the day the onset of the Covid-19 pandemic led the Federal Reserve to drop interest rates to nearly 0%. Wednesday’s rout erased an estimated $985 billion off the market capitalization of the $27 trillion Nasdaq.

The day was even worse for the Magnificent Seven, the group of tech stocks that have propelled the market to dozens of record highs this year alone. The Roundhill Magnificent Seven ETF (MAGS), an equal-weighted index of the seven companies, tumbled 6.1%, its largest drop since it began trading in April 2023. Wednesday’s declines officially plunged the ETF into correction territory. The fund's shares have shed 12% since July 10, the day before a soft inflation report sparked a rotation into the small-cap stocks that stand to benefit most from the interest rate cuts that Wall Street sees on the horizon.

The tech stock sell-off comes just one day after the Dow and S&P 500 both reached record highs. Tech shares slumped Wednesday as investors shed the behemoths that fueled Wall Street’s monster stock rally this year. The Nasdaq Composite index tumbled 2.8%, logging its worst day since December 2022. The S&P 500 lost 1.4%. The Dow rose 0.6%, closing at another record high and above 41,000 for the first time. That comes exactly two months after the Dow first closed above the 40,000 level.

Shares of tech heavyweight Nvidia (NVDA) slumped 6.6% and rival chipmaker Advanced Micro Devices (AMD) shares dropped by 10.2%. The sell-off comes after a Tuesday report from Bloomberg that the Biden administration is mulling plans to impose more sanctions on Chinese tech firms and to heighten semiconductor trade restrictions between the US and China. The US Commerce Department declined to comment.

Investors are also selling tech stocks after a cool inflation report last week and stronger-than-expected retail sales data on Tuesday pushed up bets for a rate cut in September. Wall Street is looking to beaten-down stocks that tend to perform better when borrowing costs are low.

The Russell 2000 index, which tracks the performance of small-cap stocks, fell in midday trading Wednesday but is still up 4.5% for the week. The Magnificent Seven tech stocks, which have led most of the gains this year thanks to the artificial intelligence boom, tumbled. Microsoft (MSFT) shares fell 1.3%, Apple (AAPL) shares slid 2.5%, Amazon (AMZN) shares declined 2.6%, Alphabet shares declined 1.6%, Tesla shares slipped 3.1% and Meta Platforms shares lost 5.7%.

As stocks settle after the trading day, levels might change slightly. CNN’s Sean Lyngaas contributed to this report.