US stocks head into Thursday’s session on the back foot after another bruising tech selloff knocked Wall Street’s most popular trades off their pedestal.

The S&P 500 dropped around 0.46%, while the Nasdaq Composite slid about 0.6%, extending a sharp two‑day retreat in high‑growth names.

The Dow Jones Industrial Average shed roughly 240 points, or 0.4%, as investors rushed to cut risk and question how long the AI‑driven boom can defy gravity.

US stocks open: Tech unwind deepens as crowded trades crack

What is playing out now is a classic shakeout in “crowded trades” as positions where too many investors pile into the same winning theme at the same time.

Over the past year, that crowding has been most visible in large‑cap technology and AI beneficiaries, from chipmakers to software platforms.

As earnings guidance turns more cautious and capital‑spending plans explode, traders are suddenly less willing to pay any price for future growth, and the result is an air pocket under the market’s former leaders.

The latest downdraft has been led by semiconductor and software names, where optimism about AI demand had pushed valuations to extremes.

A disappointing market reaction to recent chip earnings, even when headline numbers beat forecasts, underlined how unforgiving the tape has become.

When investors start to doubt how quickly AI spending will turn into hard profits, they move first by cutting exposure to the sectors that had run up the most.

That shift is feeding a broader “risk‑off” mood, market shorthand for investors dialling back exposure to riskier assets like equities and rotating into safer or more defensive plays.

In practice, this has meant steady outflows from growth and momentum stocks, and more interest in areas such as utilities, consumer staples and parts of healthcare.

These sectors may not be exciting, but their earnings are typically steadier and less sensitive to shifts in the interest‑rate or hype cycle.

The divergence inside the S&P 500 captures this rotation well.

Risk shifts away from growth

Even as the index fell, many individual names outside big tech held up relatively better, suggesting that this is not yet a blanket call on the US economy but a targeted reassessment of price and risk.

Put differently, investors are questioning where they want to be in the market, more than whether they want to be in it at all.

Higher bond yields and lingering uncertainty over the Federal Reserve’s path are adding to the pressure on long‑duration growth stories.

Elevated yields make it harder to justify lofty valuations, because future profits are “discounted” more heavily when benchmark interest rates are high.

That hits technology and other growth stocks hardest, as so much of their value is tied to earnings years down the line rather than cash flows today.

The key question is whether this marks the start of a deeper de‑rating of tech and AI favourites, or a painful but ultimately healthy reset after a powerful run.

For now, the message from the tape is clear: the market is no longer willing to fund every hot narrative without demanding proof.

Traders heading into the new session will be watching closely to see if dip‑buyers have the conviction to step back into those crowded trades, or if the risk‑off stance still has further to run.

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