Tech Selloff Masks Broader Strength as Traders Bet on Recovery

By Nathan Brooks

France's 10-year bond yield slipped back below the psychologically loaded 5% mark to 4.94% on Monday, and the U.S. 10-year sat at 4.99%, as traders shook off last week's tech-driven carnage and looked for openings. Saudi-Iran talks are ongoing, and Moody's left France's credit rating unchanged from before the riots. U.S. futures rose 0.32% before the New York bell, following gains of 0.39% on Europe's Stoxx 600 and 0.5% on the FTSE 100 in early trading.

Asia told a different story. South Korea's KOSPI fell 1.46%, Japan's Nikkei 225 dropped 0.8%, India's Nifty 50 rose 0.52%, and China's CSI 300 was flat — all with Brent crude holding painfully above $114 per barrel. Bitcoin declined to $80,440.

The week ahead is packed. Alphabet and Microsoft report Q3 earnings Wednesday, Amazon follows Thursday, and the Federal Reserve decides on the base rate Wednesday, with futures markets pricing a hold at 3.75%.

What does last Thursday's selloff actually tell you?

Here's the detail most desks missed: 337 of the S&P 500's stocks rose on Thursday. The index still lost 1.21%, and the Nasdaq fell 2.9%, because tech's overweight position in the index dragged the aggregate. The equal-weight version of the S&P actually went up.

Deutsche Bank's Jim Reid put the day in context. Since 1996, 300 or more S&P stocks have risen on 2,887 of 7,827 trading days — roughly one day in three. But Thursday's aggregate performance was the second-worst of all those 300-plus days.

"The only worse occasion was 27 January 2025, when the index fell -1.46% despite 351 stocks rising. That was the day DeepSeek challenged assumptions around the need for costly AI capex. NVIDIA fell -17%," Reid told clients.

Is the real risk a bubble — or a capital shortage?

While traders spent last week pricing AI as a bubble, AI executives were worried about the opposite problem: growth constrained by a lack of money. Meta's stock sold off after its earnings call because its AI capex was so large the company reported negative free cash flow — and it raised its capex guidance for the rest of the year.

Meta's 10-Q states the risk plainly: "Such financings may not be available on favorable terms or at all." With Oracle, OpenAI, Alphabet and SpaceX each trying to raise hundreds of billions through equity or debt, competition for capital is fierce.

"Investors interpreted the move as a sign that even hyperscalers may be rushing to secure financing before competitors absorb the available capital," Ed Yardeni and Elias Griepentrog of Yardeni Research wrote. Their question cuts to the bone: "Does enough capital even exist to finance everyone's ambitious AI spending plans?"

Broadcom CEO Hock Tan, BlackRock CEO Larry Fink and Nvidia CEO Jensen Huang have all warned recently that there might not be enough money to go round, according to Yardeni.

The bubble case has its own evidence. A chart from Michael Hartnett's team at Bank of America tracks the concentration of bubble stocks inside the indexes of their day. With one exception — the railroad bubble of the 1800s — once bubble stocks reach 40% of the broader index's market cap, a crash has soon followed.

What does the dip-buying mean for retail traders?

For long-term savers, the playbook hasn't changed. Most stock-pickers fail to beat the market, which generally returns 6-10% per year, so index ETFs remain the sensible default. "Don't look for the needle in the haystack. Just buy the haystack!" as the late Vanguard founder Jack Bogle put it.

But Wells Fargo tracked 546 leveraged ETFs in the U.S., holding $160 billion in assets combined, and found these levered-up retail buyers consistently buy the dip — they love bad news. Last week they waded into the carnage, treating it as seriously as last year's "Liberation Day" selloff.

So what does this change for practitioners? If the equal-weight index is rising while the cap-weighted one falls, the trade is rotation, not exit — and with Fed day plus three megacap earnings reports landing midweek, positioning before Wednesday's rate decision is where the risk now sits.