Tech stocks lead Nasdaq, S&P 500 lower as rebound attempt fails

A clutch of tech stocks led benchmark indices lower on Monday, particularly the Nasdaq and the S&P 500, as a comeback attempt from Friday’s sell-off failed on Wall Street.

The Nasdaq ended 1.2% lower, dragged by Palantir, which shed another 10.5%, along with Microsoft and Nvidia, which fell 3% ahead of its results later this week. The S&P 500 closed 0.5% lower, while the Dow Jones just about managed to close above the flat line.

Going into the trading sessions, futures were indicating a rebound from Friday’s steep fall, but that was not to be.

Concerns also increased when US President Donald Trump said that the tariffs planned against Canada and Mexico will go forward after a month-long delay.

“The White House had investor support for the first four weeks of the term, but the honeymoon may be coming to an end,” said Scott Helfstein, head of investment strategy at Global X.

Investors have started to boost bets that volatility will come back as Nvidia’s earnings on Wednesday could be the first in a whirlwind of events with the potential to send the market into conniptions. That’s after the US equity benchmark spent 36 sessions without posting consecutive declines of more than 1%.

“There is very little room for Nvidia to disappoint analyst profit expectations this year, given its assumed leadership position in AI, already elevated valuations, and new developments and entrants in the space that could threaten its dominance over time,” said Anthony Saglimbene at Ameriprise.

Among individual stock movers, Alibaba Group Holding Ltd. tumbled in US trading amid a $53 billion AI spending pledge and as The Trump administration took aim at China with a series of moves involving investment and trade.

The yield on 10-year Treasuries slid three basis points to 4.4%. Bonds remained higher after a $69 billion sale of two-year notes drew record demand. Canada’s dollar and Mexico’s peso fell as President Donald Trump expects tariffs planned to take effect on both countries to go ahead next month.

Positioning in mega-cap growth and tech remains very elevated heading into Nvidia’s earnings release due this week, in the 97th percentile and well above levels implied by earnings growth, according to Deutsche Bank AG strategists including Parag Thatte.

Fourth-quarter earnings are on pace to significantly exceed earnings estimates across capitalizations — nearly doubling the pre-season forecasts — but it hasn’t been enough to satisfy investors as stocks are responding with unusually sour returns, according to Gina Martin Adams and Wendy Soong at Bloomberg Intelligence.

“Disappointments in guidance, revisions and operating margin all share the blame,” the strategists noted. “Nvidia could still move the needle as the large-cap season wraps up.”

Morgan Stanley strategist Michael Wilson — a bearish voice on US stocks until mid-2024 — said he expects capital to return to US stocks, calling the S&P 500 “the highest quality index” with “the best earnings growth prospects.”

“It’s premature to conclude the rotation away from the US is sustainable,” Wilson wrote in a note.

(With Inputs From Agencies.)