Angst over SpaceX IPO adds to dive in tech stocks

By Joy Wiltermuth and Isabel Wang

Tech stocks fall sharply Tuesday, but investors aren't bailing on the rest of the S&P 500

Tech stocks fell Tuesday, deepening a rout that started in early June for highflying areas of the equity market.

Technology stocks tumbled on Tuesday, extending a swoon that began in early June, as investors anxiously await the historic SpaceX IPO later this week and retreat from hot parts of the artificial-intelligence playbook.

The concern is two-fold: For one, SpaceX (SPCX) is currently planning to supply the public with up to $86 billion worth of its shares; and two, there's the worry that investors will have to raise cash to buy up that supply by trimming stakes in their recent winners.

While those could be big reasons for investors to back out of tech, there's likely more to it than that. As Steve Sosnick, chief strategist at Interactive Brokers, put it, the increased supply via SpaceX shares may be contributing to "bad psychology" in the market and "causing some investors to raise money to pay for it" - but he doesn't think that's the main reason.

Sosnick sees the tech selling as directly related to "fractures" in the sector that Friday's selloff exposed. "We saw customers aggressively buying Friday's dip, and when the usual bounce failed, it became hard to avoid the wave," he said.

Also read: This Big Tech investor's warning for traders: Watch out for the SpaceX IPO.

The S&P 500's information-technology sector XX:SP500.45 closed 1.8% lower on Tuesday - its worst day since Friday, when it plunged 5.8%, according to FactSet. Worse yet was the nearly 8% drop in shares of Marvel Technology (MRVL) and the PHLX Semiconductor Index's SOX 1.9% decline.

Semiconductor and memory stocks have seen extreme gains in the past two months, leading to anxiety around the narrow scope of the recent rally but also fear among investors not wanting to miss out on the action.

"The good news is the market isn't getting crushed," said Ryan Detrick, chief market strategist at Carson Group, pointing to nine of the S&P 500's SPX 11 sectors pushed higher on Tuesday.

With semiconductor stocks gaining 70% in the past two months, "everyone knew they were due for a pause," Detrick said. After all, the "lifeblood" of any bull market is rotation, he noted - which was evident on Tuesday, as tech and other hot areas of the market dropped while the S&P 500's real-estate sector XX:SP500.60 surged 2.1%.

The AI whiplash was playing out beyond U.S. borders, with South Korea's stock market KR:180721 also caught up in the buying-and-selling frenzy.

Read: A massive 16% market swing just rocked South Korea over 24 hours. The retail 'ants' at the wheel are driving dangerously.

Institutions are likely lightening up on tech exposure to raise cash in anticipation of Meta (META) potentially following Google's (GOOGL) (GOOG) big stock issuance, but also the highly anticipated IPOs from SpaceX, OpenAI and Anthropic, said Mark Hackett, chief market strategist at Nationwide's Investment Management Group.

"To a lesser degree, retail investors are likely following a similar path, as a record 30% of the SpaceX IPO will be reserved for retail investors," he said. "For those that don't get in on the IPO, many will likely buy once it trades."

Beyond the SpaceX excitement - and dread - Wall Street was getting ready for Wednesday's release of May's consumer-price index, which is expected to show the yearly rate of inflation pushing above 4%, as well as a reading of wholesale prices a day later.

After stripping out volatile food and energy prices, a cooler-than-expected CPI print would allow the Fed's interest-rate-setting committee to keep its target policy rate at 3.5% to 3.75% "with little urgency to move in either direction, confident in the labor market's resilience while keeping an eye on the risk of future energy pass-through to the core," said Will Compernolle, a macro strategist at FHN Financial, in a Tuesday client note.

A hotter inflation reading would "imply accelerating inflation independent of the war, firm market expectations for a 2026 [rate] hike, and encourage hawkish Fed officials to project policy tightening."

See: Inflation could top 4% this week. The bond market wants Fed Chair Warsh to prove he'll fight it.

Detrick said higher inflation makes additional rate cuts from the Fed unlikely, but also points to a U.S. economy that's turning a corner and improving. That backdrop should support the rotation in stocks that's been evident in the past few sessions. "Maybe people go to other underloved areas like value," he said.

The Dow Jones Industrial Average DJIA gained 0.2% Tuesday, while the S&P 500 fell 0.3% and the Nasdaq Composite Index COMP closed down 1%, according to FactSet.

Tomi Kilgore contributed

-Joy Wiltermuth -Isabel Wang

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06-09-26 1714ET