Tech stocks are leading a fresh market sell-off as oil prices spike

The stock market was hit with a wave of selling on Tuesday as traders dumped some of the market’s highest-flying tech names and reacted to a spike in oil prices.

On the tech side, investors have been wary of high valuations for months, and are anxiously watching for signs that the AI trade is under pressure. A rotation into other parts of the market that began at the start of the year accelerated in Tuesday’s session.

While many of the top tech and AI names in the S&P 500, stocks in other sectors jumped as investors looked for better deals. FedEx stock was up more than 5%, and retailers including Walmart, Target, and Costco rose as much as 2%.

Meanwhile, oil spiked and the Cboe volatility index rose nearly 20% on fresh Middle East tensions after the US said it shot down an Iranian drone.

Investors fear that higher oil prices could weigh on the US economy by causing renewed upward pressure on inflation. Brent crude, the international benchmark, was up 2% to about $67.50 a barrel, reflecting an 11% increase from its low in December. US oil prices were also up 2% to about $63.50 a barrel.

The major indexes sank into the red in the early afternoon, but pared the deepest losses. The Dow clawed back much of its drop of more than 500 points and the Nasdaq ended lower by 1.4% after declining by over 2% during the session.

“The enthusiasm for AI rolls through peaks and valleys,” Louis Naveillier, the chairman of Naveillier & Associates, wrote in a note on Tuesday during the tech sell-off. “These higher energy prices will add to inflation pressure,” he added of the move higher in oil.

Here’s where US indexes stood at the 4 p.m. ET closing bell on Tuesday:

Here were the big moves in the tech sector:

Mega-cap tech stocks have been front-of-mind all week as more companies report results for the fourth quarter. Some tech giants, like Microsoft, plunged as investors continue to express concerns over how much firms are spending on artificial intelligence without a clear outlook for how huge capex will translate into returns.

Investors had been keeping a closer eye on oil prices this year amid geopolitical tensions between the US and other major crude producers, like Venezuela and Iran. In January, some forecasters were eyeing the possibility of an oil shock, a situation where crude prices jump due to supply disruptions, hurting economic activity.