Technology stocks had their worst day in more than six years last week, and the selloff turned a post-election rally into a loss for the week. On Wednesday, the day after the midterm elections, stocks rallied. The Dow Jones Industrial Average rose about 3.0% that day, its best day after a midterm election in 44 years according to CFRA Research, helped by a sharp drop in oil prices. The mood turned on Thursday. Investors began to worry that proposed limits on new data centers, including a pledged moratorium in Texas, could slow construction of the large computing facilities behind artificial intelligence. The Nasdaq 100, which is dominated by the largest technology companies, fell 6.4% on Thursday, its worst day since March 2020, and an index of semiconductor (computer chip) stocks fell 12.3%, its worst day in about six and a half years. Nvidia, a leading maker of chips used for artificial intelligence, fell 9.3% that day. The Nasdaq Composite rose 1.1% on Friday, which made back only a small part of Thursday's loss.
The economic news pointed to an economy that is still strong. Friday's jobs report showed employers added 165,000 jobs in October, well above the roughly 65,000 economists expected according to an LSEG poll, and the unemployment rate fell to 4.1% from 4.2% in September. Hiring for August and September was also revised up by a combined 84,000 jobs. On Wednesday, the ISM survey of service businesses came in a touch below expectations at 54.5, and its measure of prices paid only eased to 73.0 from 74.0 the month before, a sign that price pressures in the service economy have not cooled. At Friday's close, traders in interest-rate futures priced roughly a 77% chance that the Federal Reserve raises rates at its December 9 decision, according to CME FedWatch, up from about 70% before the jobs report. Even so, investors bought Treasury bonds as stocks fell, which pulled yields, the interest rates the government pays on its debt, lower. The 2-year Treasury yield ended the week at 4.51%, down 0.05 percentage points, the 10-year at 4.86%, down 0.08 percentage points, and the 30-year at 5.26%, down 0.05 percentage points. Oil fell sharply. Brent crude, the global oil benchmark, settled below $100 a barrel on Wednesday for the first time since September 22, as traders priced better odds of an end to the Iran war, and it settled at $98.32 on Friday. That was a drop of roughly 13% to 16% for the week, depending on the contract, and by Reuters' measure oil's steepest weekly decline since 2020. Lower oil should ease the overall inflation rate, but too late to affect Tuesday's October consumer price index.
Under the surface, the losses were concentrated in the largest technology companies. For the week, the S&P 500 fell -2.67% and the Nasdaq fell -3.37%, while the Dow declined a smaller -1.35%. Small-cap stocks also fell, with the Russell 2000 down -2.03%, and international stocks slipped, with the MSCI ACWI Ex-USA index down -2.48%. An equal-weighted version of the S&P 500, which gives every company the same weight regardless of size, fell far less than the standard index, another sign that the damage was concentrated in the biggest names. High-quality bonds rose: the Bloomberg US Aggregate bond index gained +0.40% while stocks fell, and gold prices also rose for the week. The VIX, a gauge of expected stock market swings, ended the week at 25.64, up from 19.42 a week earlier.
Inflation is the focus this week. Early in the week, the New York Fed releases its survey of consumers' inflation expectations, and Tuesday, November 10, brings the October consumer price index, a key inflation reading ahead of the Fed's December 9 decision. With hiring strong and service prices still elevated, a firm reading could strengthen expectations for a December rate increase, while a softer one could support last week's easing in long-term yields. Tuesday also has the weekly ADP private payrolls estimate and an auction of 10-year Treasury notes. Bond markets are closed Wednesday for Veterans Day, and Thursday brings a 30-year Treasury bond auction along with weekly jobless claims and existing home sales. Demand at these auctions shows how willing investors are to lend to the government for long periods, which affects long-term interest rates. The producer price index, a measure of the prices U.S. producers receive for the goods and services they sell, follows on Friday.
Last week's selloff showed how much of the stock market rests on a handful of large technology companies. Earnings have grown quickly this year: as of early October, analysts surveyed by LSEG expected S&P 500 earnings to rise about 35% in 2026, the fastest pace since 2021, with chip makers and other companies tied to artificial intelligence among the biggest contributors, according to FactSet. That sets a high bar for 2027, when the same LSEG analysts expected growth to slow to about 15%. When companies are measured against much stronger results from a year earlier, even good results can disappoint investors who have priced in more. It is too early to say whether last week marks a broader shift, but we think the tougher comparisons ahead deserve attention now.
In general terms, our posture has become more cautious: we have leaned toward more defensive, lower-volatility stock holdings, relied less on the largest growth companies, and added to high-quality bonds, including longer-term U.S. Treasuries. These choices carry risk: the slowdown we are watching for may come later than we expect or not at all, portfolios may lag if large technology stocks lead the market again, and longer-term bonds fall the most when interest rates rise. Individual accounts vary with each client's plan and instructions, and diversification does not ensure a profit or protect against loss.
We remain diversified across market capitalizations, sectors, and geographies, with an emphasis on higher-quality companies we believe may hold up better when markets turn volatile, though they can still decline. Many factors can change the outlook, and we will keep reviewing our positioning as the data changes. The November 10 inflation report is the next test. We believe a disciplined approach, rather than reacting to a single week's headlines, is a sound way to approach a period like this one.
If you have any questions about the above, please reach out to us to set up a one-to-one meeting so we can review your situation.
Sincerely,
President
SBC Investment Management
P: (602) 641-5996 · M: (319) 520-2033 · E: bandrus@sbcinvestmentmanagement.com
Investment Analyst, Junior Portfolio Manager
SBC Investment Management
P: (435) 775-2950 · M: (435) 590-8317 · E: jrehkop@sbcinvestmentmanagement.com