Nasdaq Futures Dive Over 1% as Investors Dump Tech Stocks, Turn to Small-Caps

U.S. stock index futures tumbled on Wednesday, with the Nasdaq 100 leading the decline, as investors offloaded megacap tech and chip stocks and shifted their focus to previously underperforming areas of the market, such as small-cap stocks.

Major tech companies like Apple, Microsoft, and Alphabet all saw their shares drop in premarket trading, while semiconductor stocks, including AI-chip favorite Nvidia and ASML, also experienced significant declines. This sell-off was triggered by a report suggesting that the Biden Administration was considering implementing stricter trade restrictions on Chinese chips.

The news, coupled with Republican presidential candidate Donald Trump’s comments about Taiwan’s defense contributions, further fueled the negative sentiment in the tech sector.

Meanwhile, futures tracking the small-cap Russell 2000 index rose, continuing a five-session rally as investors sought opportunities in previously underperforming areas of the market. This shift in focus was attributed to growing expectations of a potential easing of monetary policy by the Federal Reserve.

Trade Nation’s senior market analyst David Morrison also pointed to profit-taking as a possible reason for Wednesday’s dip in futures. The recent surge in stocks, driven by firmer bets on a Fed rate cut and expectations of a Trump return to the White House, may have prompted investors to lock in their gains.

Investors are now eagerly awaiting comments from Fed officials Thomas Barkin and Christopher Waller later in the day, seeking clues on how policymakers are interpreting recent inflation, employment, and retail sales data.

The second-quarter earnings season also remains in focus, with Johnson & Johnson and Northern Trust among the companies scheduled to report before the opening bell.

In economic news, housing starts and industrial production data for June are expected to be released later in the day.

Among individual stocks, trucking firm JB Hunt Transport Services saw a 3.0% drop after reporting a significant decline in second-quarter profit. Spirit Airlines also slumped 5.7% due to a lowered second-quarter revenue outlook.

Overall, the market is experiencing a shift in sentiment as investors reassess their positions in light of recent developments. The tech sector’s weakness, combined with the rising appeal of small-cap stocks and the ongoing earnings season, is creating a dynamic and unpredictable environment for investors.