Stocks fall as S&P 500 dragged down by tech. Is the selling over?

MW Stocks fall as S&P 500 dragged down by tech. Is the selling over?

By Christine Idzelis

An ETF focused on software stocks just saw its worst day since April 2025

Stock-market investors are weighing fourth-quarter corporate earnings.

The U.S. stocks ended lower Tuesday as software and Big Tech struggled, with the S&P 500 vulnerable to pullbacks at it trades near a record high.

The S&P 500 SPX fell 0.8% to finish at 6,917.81, or 0.9% below its record closing high booked on Jan. 27, according to Dow Jones Market Data.

Although economic growth has been supportive of the U.S. stock market, "I do think what we're all worried about is how fragile this backdrop is," said Nelson Yu, head of equities at AllianceBernstein, in an interview.

He pointed to worries over a "concentration" in growth driven by investment in artificial intelligence and a reliance on the spending of wealthy people who make up the "the top 10% of consumers" in a so-called K-shaped economy. A K-shaped economy reflects affluent people doing well while people with lower incomes are having a hard time.

The stock market's fall on Tuesday reflected investor concerns about concentration risk relating to Big Tech and how investor enthusiasm for AI has contributed to stretched valuations in the market.

Information technology XX:SP500.45 was the S&P 500's worst-performing sector on Tuesday, dropping 2.2%, while the Dan IVES Wedbush AI Revolution ETF IVES, an exchange-traded fund that invests in stocks tied to the AI theme, also fell 2.2%, according to FactSet data. Big Tech stocks that have an outsize weighting in the S&P 500 fell sharply, with Microsoft $(MSFT)$ and Nvidia (NVDA) each ending down almost 3% while Meta Platforms (META) dropped more than 2%.

Software stocks sold off, with State Street SPDR S&P Software & Services ETF XSW, which provides exposure to that segment of the U.S. stock market, slumping 5.7% on Tuesday to post its worst day in about 10 months, according to Dow Jones Market Data.

The S&P 500's consumer-discretionary sector XX:SP500.25 was also under pressure Tuesday, dropping about 1%, according to FactSet. "If equity markets take a deep downturn, the wealth effect goes away," and then so might a lot of the spending by the wealthy whose consumption is a significant driver of economic growth, Yu noted.

Still, overall, companies in the S&P 500 have generally shown in their fourth-quarter earnings results so far that they can maintain their profit margins, which is "consistent with the broadly supportive economy," Yu said.

But many pockets of the market are "very much priced to perfection," he added, which partly explains the fragility seen in the market, as it means stocks risk being punished when earnings disappoint investors.

All three major U.S. equities benchmarks ended lower Tuesday, with the Dow Jones Industrial Average DJIA and Nasdaq Composite COMP joining the S&P 500 in the red. The Dow shed 0.3%, while the tech-heavy Nasdaq slumped a sharp 1.4%.

-Christine Idzelis

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(END) Dow Jones Newswires

February 03, 2026 18:43 ET (23:43 GMT)

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