Nasdaq selloff deepens 3% as chip stocks face technical test

The Nasdaq Composite's 3% slide has pushed the index toward a critical technical level that could determine whether the AI-driven rally resumes or a deeper correction takes hold.

The Nasdaq Composite fell 3% to 17,842 on Thursday, its steepest single-day drop in three months, as semiconductor stocks extended a selloff triggered by profit-taking after a blistering AI-driven rally. The index touched a session low of 17,710 before paring losses into the close.

"The market is repricing after an extraordinary run, and the question now is whether this is a healthy pullback or the start of something more sustained," said Michael Wilson, chief equity strategist at Morgan Stanley.

The selloff was led by the semiconductor sector, with the Philadelphia Stock Exchange Semiconductor Index sliding 4.7%. Advanced Micro Devices dropped 9%, Intel fell 8%, and Nvidia lost 4.3%, making them the three largest drags on the Nasdaq 100. The Invesco QQQ Trust, which tracks the index, fell 3%. All 11 GICS sectors finished lower, with information technology down 3.2% and communication services off 2.1%. Utilities and consumer staples, typically defensive havens, fell the least at 0.8% and 1.1%, respectively. The Cboe Volatility Index rose to 19.84, up from 18.92 the prior session and above its trailing one-year average of 16.2. Trading volume on the Nasdaq was 12% above the 20-day average, reflecting elevated participation during the selloff.

The Nasdaq now sits less than 3% above its 50-day moving average, a level that has acted as support during each pullback over the past 12 months. A break below that threshold could accelerate selling, with the next major support at 17,200, roughly 4% below current levels. The next catalyst for direction comes June 18, when the Federal Reserve releases its latest rate decision and dot-plot projections.

Chip Rout Erases $400 Billion in Market Value

The semiconductor selloff has erased more than $400 billion in market value from Philadelphia Stock Exchange Semiconductor Index constituents since the decline began June 5. The index had surged 89% year to date before the pullback, leaving the Nasdaq 100 acutely exposed to chip-sector concentration risk. Nvidia alone accounts for 6.6% of the Vanguard Total Stock Market ETF, while AMD and Intel together represent another 1.3%.

The selloff lacks a single identifiable catalyst. Broadcom's second-quarter earnings on June 4 disappointed on its AI chip outlook, triggering the initial wave of selling. But the move accelerated as momentum-driven strategies unwound positions accumulated during the sector's 89% year-to-date surge. Traders pointed to three factors amplifying the decline: a 12-basis-point rise in the 10-year Treasury yield to 4.38%, options gamma positioning that forced dealers to hedge by selling more stock as prices fell, and end-of-quarter rebalancing by institutional investors locking in gains.

The 10-year yield rose 12 basis points to 4.38% after a stronger-than-expected jobs report on June 5 pushed rate-cut expectations further into 2026. The dollar index edged up 0.3% to 104.6, adding pressure on growth stocks. Gold fell 1.2% to $2,312 an ounce as the stronger dollar and higher yields reduced the appeal of non-yielding assets.

For investors, the key question is whether the selloff represents a healthy digestion of extreme gains or the beginning of a broader tech correction. The 50-day moving average has held during every pullback since the AI rally began in early 2025. A decisive break below that level would mark the first failure of that support pattern, potentially triggering further selling from trend-following strategies.

This article is for informational purposes only and does not constitute investment advice.