The US tech sector has had a torrid time of late.
Ever since Broadcom issued some disappointing forward guidance, along with a solid, consensus-beating first-quarter result, tech stocks have been on the back foot.
Then, just as investors were starting to ask if the US non-farm payroll release was still the most important monthly data release, they got an answer in the affirmative.
The selloff that followed Broadcom’s earnings was exacerbated by last Friday’s non-farm payroll update.
This was much stronger than anticipated, and the news boosted the probability that the US Federal Reserve would be forced to raise interest rates by as much as 50 basis points by the end of the year.
It’s worth remembering that the consensus expectation just a few months ago was that the Fed would announce two 25-basis points worth of-point cuts in 2026.
This was despite little evidence that inflation had truly topped, and a certain reluctance by Jerome Powell, the Fed’s Chair at that time, to reduce borrowing costs further after Donald Trump won the presidential election in November 2024.
President Trump put immense pressure on the Fed Chair, repeatedly criticizing him for not cutting rates, and even musing that he was considering sacking him.
In fairness, the rate cuts that had happened at the Powell Fed were considered by some to have a political angle, and not one that was particularly helpful to the president.
But then came the war with Iran and an uptick in inflation, which Kevin Warsh, the new Fed Chair, has to deal with.
Mr Warsh will preside over his first FOMC monetary policy meeting next week.
While there’s no chance of any change to the Fed Funds rate, this is a significant event.
Not only will Kevin Warsh hold a press conference after the rate announcement, but it is also a quarterly meeting, which means that the FOMC will release its Summary of Economic Projections.
In this, FOMC members give their forecasts for the Fed Funds rate, inflation, unemployment, and economic growth for the rest of the year and beyond.
It will provide the first opportunity for analysts and investors to see just how closely, or not, the Fed’s projections under Warsh line up with market expectations.
But before then, investors have other pressing issues. The tech-led selloff hasn’t eased up yet.
Sure, there have been a few bounces, but these have been sold into so far, suggesting that investors aren’t yet ready to buy the dip with much conviction.
It has been said that the selloff has been driven by traders anxious to realize funds so they can invest in the SpaceX IPO on Friday, 12th June.
There may be something in this, particularly as OpenAI and Anthropic are also coming to market, most likely after the summer.
And the US stock market was/is ripe for some profit-taking.
There has been an extraordinary run up in tech stocks, led by the chip sector, since the end of March.
Not only did this see sharp rebounds in market leaders like Nvidia, Super Micro Computer, and TSMC, but it also saw some overlooked chip stocks wake up from a long hibernation.
Advanced Micro Devices, Micron Technology, and Marvell Technology Group have surged.
In little over two months, these stocks gained 167%, 240%, and 283%, respectively.
No wonder there’s been some profit-taking. Anyone clever or fortunate enough to be on board these stocks earlier this year would be mad not to take some cash off the table.
The question now is whether the selloff is yet another ‘buy the dip’ opportunity, or a tremor that warns of trouble ahead.
(This is a fortnightly column by David Morrison. He is a Senior Market Analyst at Trade Nation. Views are his own.)
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