With Tech Under Strain, Stocks Are Set to Extend Their Losses

US equities were on track for a third consecutive decline Thursday, with pressure mounting on major technology names as investors questioned lofty valuations and the Federal Reserve’s pace of interest-rate cuts.

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Futures tied to the S&P 500 slipped 0.4%, while contracts on the Nasdaq 100 dropped 0.5%. Tech stocks led the pullback, with Oracle Corp. falling more than 2%. Six of the Magnificent Seven traded lower, with Apple Inc. standing as the lone gainer in early action.

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Digital assets also softened, with Bitcoin and other cryptocurrencies retreating ahead of a potentially turbulent end to the week. Roughly $22 billion in options contracts are set to expire, raising the risk of heightened volatility.

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Meanwhile, the US dollar held its recent gains, while Treasury yields showed little movement. The 10-year note remained near 4.15%, signaling investor indecision after recent swings.

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Optimism fueled by expectations of Fed rate cuts and the ongoing AI boom reached a peak last week after policymakers signaled a faster pace of easing to cushion a weakening labor market. But since then, higher oil prices and more cautious commentary from Fed officials have cooled the mood, leaving investors without fresh catalysts.

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Market pricing now suggests about a 60% probability of two quarter-point rate cuts by year-end, down from 70% right after the Fed meeting. Central bankers themselves penciled in two cuts in their latest projections, but traders are hedging expectations.

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Friday’s release of the Fed’s preferred inflation measure could provide the next critical clue. Economists expect the data to show inflation slowing last month, but the extent of that moderation will shape the outlook for policy.

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“Prosperity targeting may be the Fed’s new mantra, but that doesn’t mean it’s ignoring inflation,” said Florian Ielpo, head of macro research at Lombard Odier Investment Managers. “Markets hooked on the idea of rapid cuts could face a short-term hangover.”

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With monetary policy uncertainty lingering, the upcoming corporate earnings season could become the next driver for equities. According to Barclays strategists led by Venu Krishna, S&P 500 companies face limited downside risk from any slowdown in AI-related spending.

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The team emphasized that the AI growth story remains strong, as demand continues to exceed supply even with massive capital outlays.

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“It would take a lot to derail this rally,” said Vincent Mortier, Chief Investment Officer at Amundi SA, in an interview with Bloomberg News. “Regardless of debates over valuations, macro risks, or geopolitics, this market is technically well supported, particularly by US retail investors.”

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Overseas, pressure extended into bond markets. UK gilts sold off across maturities, reflecting weaker demand at government debt auctions ahead of the country’s November budget announcement.

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Meanwhile, the Swiss franc slipped after the Swiss National Bank left its benchmark interest rate unchanged at zero, signaling policymakers are comfortable with their current stance despite global tightening trends.

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