With the sharp sell-off of technology stocks,$S&P 500 Index (.SPX.US)$it suffered its worst single-day decline since December 2022, breaking the record that has been maintained since the global financial crisis of 2007, and there has never been a single-day decline of more than 2%. Data shows that on Wednesday, the benchmark index of US stocks fell 2.3%. For the previous 356 trading days, the index's decline had never exceeded 2%, a performance that set the longest record in 17 years. The index had once exceeded the 200-day moving average by 15% last week, a key level that historically signaled market sell-offs.

"All good things come to an end, but that doesn't mean the end of the US stock market," said Jay Woods, chief global strategist at Freedom Capital Markets. "Rotational trading of small-cap and value stocks continues, and with the approaching US election season, seasonal factors are causing market volatility to increase."

this Wednesday's drop happened to$Tesla (TSLA.US)$The stock price plunged 12% due to lower-than-expected profits in the second quarter, the biggest drop since September 2020. Meanwhile, Alphabet,$Alphabet-A (GOOGL.US)$YouTube's advertising revenue performance was weak, further causing$NASDAQ 100 Index (.NDX.US)$to fall by about 3.7%, the biggest single-day drop since October 2022. At the same time, the S&P 500 index also fell 4.2% from its historical closing high.

Wall Street analysts predict that the profit growth of tech giants will slow down. As large tech companies like$Apple (AAPL.US)$,$Microsoft (MSFT.US)$,$Amazon (AMZN.US)$And.$Meta Platforms (META.US)$prepare to announce their earnings in the coming weeks, the market will be closely watched to determine if buyers on dips will return. Despite the challenges faced by large tech companies, other market sectors, especially small-cap stocks, have seen relatively smaller declines due to increased trader confidence in the recent rate cuts by the Fed.

On Wednesday, small-cap stocks continued to outperform large-cap stocks for the fourth consecutive trading day, and this is the 10th time in 11 days that small-cap stocks have outperformed large-cap stocks. Small-cap stocks rose by 0.5% this week, while the S&P 500 index fell 1.5% and the Nasdaq 100 index fell 2.6%. Other market sectors continued to maintain their strength, and utilities and medical care stocks performed particularly well. At the same time, about 217 S&P 500 constituent stocks continued to rise that day.$Russell 2000 Index (.RUT.US)$The activity in the derivatives market further intensified concerns about the artificial intelligence bubble. Investors have been buying call options on indices and individual stocks, especially options on

However, these strong stocks were not enough to stop the S&P 500 from experiencing its first 2% decline in 356 days. Data shows that since touching its low point in October 2022, the S&P 500 index has accumulated a market value increase of 17 trillion US dollars, one of the best performances of this century, second only to that of 2021. However, in the 141 trading days this year, the S&P 500 index has shown at least a 1% change in only 25 trading days, indicating a decrease in market volatility.

Concerns over a tech bubble are emerging.

Although tech stock rotation continues, the market's drastic volatility reveals deeper concerns. Investors are beginning to pay attention to some views on Wall Street that the rapid development of artificial intelligence over the past year may have created a bubble, bringing a value-added of up to $9 trillion to the S&P 500 index. Now, this bubble seems to be facing the risk of breaking.

"In the short term, we may see some fatigue in artificial intelligence," said Neville Javeri, portfolio manager of Allspring Global Investments, "because the investment by some big technology companies in the field of artificial intelligence may not achieve returns within the expected time frame."

Jim Covello, head of stock research at Goldman Sachs, also expressed doubts about the business prospects of artificial intelligence. He questioned the enormous cost of infrastructure needed to run and train large language models.

's options, which have played a role in pushing up stock prices. With the acceleration of the rotation of technology stocks, the change of market sentiment may have aggravated the recent market decline. For example, demand for put options on Nvidia reached a five-month high last week, exceeding demand for call options. At the same time, the demand for tail risk hedging to profit from a possible large-scale market decline has also risen at the fastest rate since October last year. In addition, the cost of preventing stock price declines has also reached about 10%, the highest level since August 2023.$NVIDIA (NVDA.US)$Analysts believe that some of the high-flying tech stocks are still expensive relative to their growth prospects, including

and that some tech stocks may fall if growth falls short of expectations. Investors are actively buying call options and put options in an attempt to profit from the market downturn. The performance of the derivatives market exacerbates concerns about the possibility of an artificial intelligence bubble.

The valuation of technology stocks has reached its most severe bubble stage in history. Two weeks ago, the P/E ratio of the S&P 500 Information Technology Index reached its highest point since 2002. Despite the market sell-off, the valuations of many large technology stocks remain astonishingly high. For example, Nvidia's expected P/E ratio for the next 12 months is 36 times, while the average P/E ratio for the S&P 500 Index is 21 times. Apple and Microsoft also have P/E ratios of over 30 times. At a critical moment when technology giants are facing a slowdown in profit growth, this undoubtedly increases the risk of profitability.

Investors are now experiencing the worst-performing August and September in history. Todd Sohn, ETF and Technology Strategy Director at Strategas Securities, said: "The decline in technology stocks has had an impact on benchmark indices, which is a painful period for growth stocks, but it is positive for the overall market of non-technology stocks, as they remain resilient." Cayla Seder, macro multi-asset strategist at State Street, said: "We still adhere to our view of large-cap, high-quality, and growth stocks. Because even if people are worried about the returns of technology stocks, they are a more attractive choice in terms of earnings growth and fundamentals."

Cayla Seder, macro multi-asset strategist at DWS, said: 'We still cling to our views of large-cap stocks, quality stocks, and growth stocks because they are a more attractive choice in terms of earnings growth and fundamentals, even if people feel uneasy about the returns of tech stocks.'

Edited by Jeffrey