By Logan Gilland, CFP®
Equity markets, and tech stocks in particular, saw a pullback this week. A scare in memory chip stocks started in Asia early in the week and spread fast through US markets. Micron was down as much as 13% at one point, NVIDIA fell about 8% on the week, and AMD dropped close to 5%. The selling was heavy enough that the tech heavy Nasdaq 100 finished the week down nearly 4%.
My wife and I got to spend the week at the beach with her family, her parents, her brother and sister in law, and our two nieces, ages four and two. My four year old niece Emery has exactly one word she likes to ask lately, and it works just as well for the market as it does for her. That word is “Why?”
So why does this week’s tech selloff matter? Losses always sting, that part is obvious. But what caught my attention was the action on Thursday, which appeared different from many of the recent technology-led pullbacks we have observed. Over the last couple of years, a tech selloff has typically been followed by strong earnings reports that cut the pullback in prices and pushed us right back to record highs in the major indices and select individual securities. We saw this play out during the conflict between the US and Iran. Concerns over rising oil prices and war were quickly pushed aside by strong earnings, with more than 80% of companies beating their earnings expectations in the first quarter of 2026. Tech stocks appeared to lead that charge and has been a narrow driving force of the markets since.
This week looked like it was setting up to be more of the same. Semiconductors, the workhorses behind AI, saw significant declines across the board on worries about AI demand, costs, and valuations. SpaceX had a rough week too, down about 11%, as that same AI sentiment started to sour. Then Micron, one of the stocks right at the center of this selloff, reported earnings on Wednesday. The numbers were stronger than investors’ expectations. The stock rallied overnight, and for a moment it looked ready to pull the whole market up with it. That did not happen.
WHY?
Instead, the market shifted its focus to two other concerns. First, the PCE numbers came in. The PCE, or personal consumption expenditures, is followed as the Fed’s preferred gauge for inflation. The headline figure matched expectations, but at 4.1% it was the highest reading since April of 2023. This ties back to what we describe as the inflation domino effect. Higher inflation means the Fed may not budge on interest rates, and may even look at a hike. That likely keeps borrowing expensive, which can slow the economy, a slower economy can reduce a company’s earnings, and generally speaking lower earnings puts downward pressure on stock prices.
The second concern came from Apple raising prices on its MacBooks and iPads, driven by higher costs for memory and storage. We believe that price hike to consumers is likely just the tip of the iceberg, and it brought the worry over AI costs, consumer spending, and inflation right back to the surface.
The market faded throughout the day and closed in the red, after looking like it was set up for another bounce back from the brink. That shift may be telling us something about these tech names. I wrote in my piece on SpaceX about the exuberance showing up in parts of this market. I am not ready to use the bubble word, but, in my view, the AI space has felt lofty for a while now. I think we could be looking at a more prolonged selloff in tech, one that lets some air out of that balloon. And since tech makes up such a large piece of the overall market, a pullback there could mean a broader pullback for the market as a whole.
Weeks like this come with the territory in investing. Rough stretches like this one at times end up planting the seeds for the next opportunity, though there’s never a guarantee that those opportunities show up or that acting on them pays off. That’s part of why I’ve been comfortable keeping reduced equity exposure in portfolios where that fits the client’s objectives, risk tolerance, and guidelines. It means we’ve got some firepower ready if and when those opportunities arrive.
It’s also the answer I typically respond with when clients ask me why we’re positioned a bit more conservatively right now. Of course, that positioning isn’t one size fits all. It depends on each client, but we feel we are prepared for weeks like this.
We will keep watching and translating the why. I hope everyone has a great weekend out there.
Talk again soon.