Nasdaq 100 Races Into Bear Market as Trump Tariffs Spark Rout

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(Bloomberg) — The Nasdaq 100 plunged toward a bear market as its losses from a February high surged past 20% as investors ditch once high-flying tech shares in a broard market rout.

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The six-week selloff has wiped out nearly $6 trillion from the tech-heavy benchmark since its peak, spurred by worries President Donald Trump’s tariffs will push the US economy into recession. The market value destruction has been biggest in the likes of Apple Inc. and Nvidia Corp., companies whose worth swelled past $3 trillion on optimism about artificial intelligence. At this rate, there will be no $3 trillion companies.

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Over the slide, chipmakers Broadcom Inc. and Micron Technology Inc. sank at least 33%, while popular AI plays like Marvell Technology Inc. and Constellation Energy plunged at least 45%. Bloomberg’s Magnificent 7 index is off 24%, while LuluLemon Athletica Inc. and AirBnB Inc. have tumbled at least 30%.

For all the selling, though, the Nasdaq 100 has still delivered annual gains of 20% for the past five years through Thursday, an advance that prompted warnings that a bubble was inflating. Even with the 20% pullback, the index’s components remain expensive relative to history, with a price-to-earnings ratio still above the average over the past two decades. For bulls, that’s a worrisome sign if a recession is in the offing.

“The drop feels awful, but we’ve only given back a percentage of a spectacular long-term rally and haven’t seen a true capitulation, so it isn’t out of the realm that we give back more,” said Steve Sosnick, chief strategist at Interactive Brokers Group in Greenwich. “There is going to come a point where big tech becomes a good value again, but I don’t know we’re there yet.” 

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Recent losses came after the Trump administration announced tariff policies that were seen as “a worst-case scenario for tech,” especially given the high exposure that companies like Apple have to countries like China as a manufacturing hub. The Nasdaq 100 sank 5.4% on Thursday, its biggest one-day drop since September 2022. Further selling came after China retaliated against those tariffs on Friday.

The selloff represents the biggest slump for the Nasdaq 100 since 2022, a year that saw the benchmark decline 33% amid slowing economic growth and shrinking profits. The release of OpenAI’s ChatGPT in late 2022 dragged the index out of the slump amid euphoria about the potential for the new technology. The Nasdaq 100 would go on to double in a little more than two years led by Nvidia and other Big Tech stocks as investors bet that heavy spending on AI would yield big profits.

During that time, Big Tech took on characteristics of defensive stocks, owing to rock-solid balance sheets and steady cash flows. The latest drawdown has robbed them of that status, as investors sell near-term winners and seek shelter in Treasuries or more traditional equity-market defensive sectors — leaving tech investors wondering when the slide will present a buying opportunity.

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“They have great cash flow and are great businesses, but the news flow is incredibly tricky,” Sosnick said. “Just as it was a fool’s errand to fight the move higher in the Magnificent Seven, if you’re looking to buy now you’re potentially standing in the way of a global tide that’s now moving in the other direction.”

Adding to the difficult calculus is the cost of AI. Big Tech has poured billions into building out infrastructure and investing in research, but profits have yet to follow. And with growth in the group’s earnings expected to slow, investors are questioning when the hundreds of billions of dollars spent on AI computing gear will pay off.

The index took 32 sessions to fall 20%. If it closes below that level, that will mark the third-fastest drop into a bear market since 2000. The Nasdaq 100’s price-to-earnings ratio has fallen to 30 times from 38 times in February, compared with an average over the past two decades of 25, according to data compiled by Bloomberg. 

“It is a time to be cautious,” said Mark Grant, chief global strategist at Colliers Securities. “Tech valuations had gotten way too high, and while they’re coming down, I think they will continue to get hit.”

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