A clear divergence is emerging across the US stock market: technology shares have been hit hard, yet more than 300 S&P 500 constituents still finished higher, while US Treasuries posted their largest single-day yield drop since the 2023 banking crisis. Thursday's session showed that the selloff in tech has not yet broadened into a market-wide decline, and that investor attitudes toward the AI trade are shifting.
On October 22, the S&P 500 fell 1.2%, its biggest one-day drop since July; the Nasdaq Composite slid 2.6%, and the Philadelphia Semiconductor Index tumbled 6.7%. In sharp contrast, the Dow was roughly flat, and the small-cap Russell 2000 edged higher. The equal-weighted S&P 500 also gained 0.7%, indicating that most constituents outperformed the market-cap-weighted index.
At the same time, the 10-year Treasury yield fell 19.3 basis points to 4.952%, the largest single-day decline since March 2023. With tech under pressure, bonds strengthening, and other stocks holding up relatively well, the market faces a key question: is this a short-term pullback after investors retreated from richly valued AI assets, or is the multi-year tech-led regime in US equities beginning to change?
Tech Stocks and Other Sectors Part Ways
According to MarketWatch, more than 300 S&P 500 constituents closed higher on Thursday, yet the index still posted a decline of more than one percentage point. This divergence reflects growing internal differentiation in US equities: declines in a handful of heavily weighted tech names were enough to offset gains across a large number of other stocks.
The AI trade had previously driven US equities steadily higher, but as companies report earnings and disclose capital expenditure plans, investors are paying closer attention to when massive AI spending will translate into actual returns. On Thursday, the semiconductor sector fell especially sharply, with the Philadelphia Semiconductor Index now more than 26% below its June high, entering technically bear-market territory.
In contrast to tech, defensive sectors such as consumer staples held up relatively well. Market strategist Mark Hackett noted that since the start of 2026, sector leadership in US equities has shifted frequently, and the divergence between AI stocks and other sectors has become increasingly pronounced.
Still, broad-based gains among individual stocks do not mean a new style rotation is already established. Only if tech continues to weaken while other sectors maintain relative strength would capital potentially begin spreading from a few large tech names into the broader market.
Treasury Yields Fall Sharply as Safe-Haven Demand Rises
Amid the equity pullback, US Treasuries drew strong buying. On Thursday, the 10-year Treasury yield fell 19.3 basis points to 4.952%, the largest single-day decline since the March 2023 banking crisis. The 2-year Treasury yield also fell sharply, reflecting investors' reassessment of the rate outlook and near-term risks.
The strength in bonds coinciding with the drop in tech stocks suggests investors are adjusting asset allocations and seeking more defensive options. But that does not necessarily mean the market has shifted to a recession trade. Geopolitical tensions, rising oil prices, and a reassessment of the Federal Reserve's future rate path may also be pushing money into Treasuries.
As a result, what matters more about Thursday's session is not the single-day moves but whether the market's internal preference for certain assets is changing on a sustained basis. If tech remains under pressure, other sectors stay strong, and demand for Treasuries remains robust, US equities could enter a broader phase of style rebalancing; conversely, if tech stabilizes and rebounds, Thursday's divergence may prove to be only a short-term adjustment.
For now, the AI trade remains the key variable for watching US equity trends. The market is not simply turning from bullish to bearish, but rather reassessing the returns on AI investment, tech valuations, and the relative appeal of other industries. Whether a new style rotation truly takes hold will require more trading days to confirm.
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