The decline in U.S. stocks worsens, with the Nasdaq entering a correction zone, and Wall Street is issuing double warnings!

Ask AI · Wall Street warnings escalate—how will tech stocks stabilizing affect the broader market’s trend?

As the Nasdaq sinks into a technical pullback, Wall Street analysts warn: until tech leaders stabilize, the U.S. broader stock market may be facing an even more ferocious storm!

Amid market turmoil triggered by the Iran conflict, tech stocks are finding it hard to keep acting as a “safe haven,” which could be a major problem for the entire U.S. stock market.

During more than three years of a bull market, tech stocks and other mega-cap technology-related shares have led U.S. stock indexes higher for much of the time. Investors have poured into these large companies, drawn by their strong earnings performance, solid balance sheets, and competitive advantages in business.

However, in the weeks before the Middle East crisis broke out, this segment had already begun to weaken; and since the conflict erupted a month ago, these stocks have accelerated the losses even further.

Edward Jones’ senior global investment strategist Angelo Kourkafas said: “In this kind of environment, all assets are taking hits, and tech stocks are no exception.”

The weakness in tech stocks has become a notable feature of the difficult first quarter for U.S. stocks, which is set to wrap up this Tuesday. The benchmark S&P 500 index is heading for what would be its worst quarter in about four years.

Since the outbreak of war, the tech sector within the S&P 500 has plunged nearly 8%, basically in line with the broader market’s decline. Some mega-cap names, including Meta and Alphabet, have fallen even more sharply. The Nasdaq Composite Index—dominated by technology and related stocks—was down more than 10% from its historical high set last October as of last week’s close, meaning it has entered a technical pullback zone.

Taking profits, sector headwinds, and rising yields

Analysts say there are many factors that have pushed tech stocks into trouble. As investors try to manage stock risk, they may choose to take profits on some of the biggest winners during the bull market, including tech stocks with extremely strong liquidity.

Walter Todd, chief investment officer at Greenwood Capital in South Carolina, said: “They had their three years in the spotlight. Maybe people are trying to trim these stocks that make them the most money to reduce risk.”

Inflation concerns sparked by the war have pushed up U.S. Treasury yields, and continuously rising yields often weigh on stock valuations. For tech stocks that rely heavily on expected future profits to support their valuations, this kind of blow is usually the most deadly.

A wave of industry-specific negative news is also dragging down stock prices. Worries that applications of artificial intelligence could upend existing businesses have left many companies scrambling. The data-center spending spree by tech giants may be weakening their appeal as safe-haven assets. Just last week, Meta and Alphabet lost a landmark lawsuit involving harm caused by social media platforms, adding yet another new risk to the industry.

Raymond James Investment Management’s chief market strategist Matt Orton said, when all kinds of adverse factors “pile up together… it just makes it harder for investors to put money in.”

“Because mega-cap stocks have ruled and succeeded over the past few years, I think they’ve become investors’ first—and easiest—cash cow,” Orton said. “With all the various negative factors interwoven, it forms a powerful headwind, making it difficult for mega-cap tech stocks—and even the entire tech sector—to move forward.”

Due to their astonishing long-term gains, these tech stocks hold very high weights in major indexes such as the S&P 500 and the Nasdaq. Even with the recent pullback, the tech sector still accounts for about one-third of the S&P 500.

As of last Friday, the “Magnificent Seven” tech names—including semiconductor giant Nvidia, Apple, and Amazon—also account for about one-third of the total market value of the S&P 500. This “concentration risk” means these stocks will continue to determine the direction of the broader market.

Orton said: “Unless these large tech stocks can stabilize in the market, the broader market can hardly find any solid footing.”

Are tech stocks still attractive?

Overall, the market remains optimistic about the profit outlook for tech stocks and mega-cap companies. Based on LSEG IBES data, tech stocks are expected to achieve 43% earnings growth in 2026, while the S&P 500 index overall is projected to have an expected earnings increase of 18.8%.

King Lip, chief strategist at BakerAvenue Wealth Management, said that if high energy prices caused by the Iran war broadly damage U.S. economic growth, then this kind of earnings resilience from tech stocks will be extremely appealing.

“In a low-growth market environment, investors are extremely hungry for earnings growth,” Lip said.

The drop in tech stocks also makes their valuations more enticing. According to LSEG Datastream data, based on earnings expectations for the next 12 months, the tech sector’s price-to-earnings ratio has fallen from 32 times in late October last year to 20 times as of last Friday.

By contrast, the S&P 500 index overall’s P/E is only slightly lower at 19.3 times. The tech sector’s P/E is facing, for the first time since 2017, the risk of falling below the valuation level of the broader market.

Some market bellwether stocks are already trading at lower levels. Datastream shows that Nvidia, a bellwether for the AI boom, currently has a forward P/E only slightly above 19 times—its lowest level since 2019. Meta’s latest trading P/E is 17 times, the lowest point in three years.

Chris Galipeau, senior market strategist at Franklin Templeton, said: “Risk-reward is improving. As the share price falls, the risk of holding them is also decreasing.”