Nasdaq Stumbles as Tech Faces Challenges Amid Policy Uncertainty

Nasdaq Stumbles as Tech Faces Challenges Amid Policy Uncertainty 

Last week proved challenging for the technology sector, as Peter Callahan, a tech trader and specialist at Goldman Sachs, noted in his recent commentary. The Nasdaq had a rough run, going 0-5 across the week—a streak not seen in the last five years and one of just 36 scoreless weeks for the index in the past decade. This rare stumble came despite initial optimism among market participants, who entered the week with confidence in U.S. equities fueled by positive seasonals, technical setups, policy optimism, and positioning. Expectations were high, with some experts, including Goldman's Scott Rubner, forecasting a post-election rally.

However, as the week progressed, a combination of uncertainty and frustration crept in, stemming from the complexities surrounding potential policy shifts. These included questions about government spending, tariffs, and health sector regulations, as well as broader macroeconomic challenges such as fluctuating interest rates and a stronger U.S. dollar. By week's end, the tech-heavy Nasdaq managed to hold onto a 2.5% gain for November, or nearly 2% even without Tesla's strong performance. Tesla, incidentally, had been a widely shorted stock among hedge funds before the election and provided a surprising counterweight to the market's challenges.

Despite these modest gains, the broader tech, media, and telecom (TMT) space faced significant headwinds. Notable names like Meta, Taiwan Semiconductor Manufacturing (TSM), Coherent, Broadcom, and Arista Networks saw declines ranging from 6% to 14% as early post-election dip-buying gave way to a late-week selloff. This downturn was driven by nuanced policy concerns and speculative market adjustments. By Friday, safe havens were scarce, with select segments like payments and consumer services offering limited refuge. Data from Goldman's Prime Brokerage revealed increasing selling pressure in the TMT sector, reflecting the week's challenges.

Looking ahead, Callahan suggests that last week's volatility might have been a testing ground for investors considering re-entering favored TMT stocks or exploring 2025 investment ideas. The coming days will reveal whether this group takes advantage of the remaining sessions before Thanksgiving to reposition. The tech sector faces a robust catalyst period, with events such as analyst days, conferences, seasonal spending trends, and the imminent holiday sales flush all on the horizon. Additionally, Nvidia's upcoming earnings report adds another layer of intrigue.

Turning to the week ahead, Callahan highlights a few key narratives. Tesla gained 7% while Uber dropped 3%, as regulatory discussions around self-driving cars intensified under former President Trump's policy focus. Nvidia faced pressure due to concerns about potential delays with its new AI chip servers, while Netflix reported that 60 million households had tuned in globally to watch the Paul/Tyson event. Perhaps most notably, Trump appointed Brandon Carr, a vocal critic of Big Tech, as the new FCC chair.

Reflecting on client inquiries from the past week, Callahan identified several hot topics. These included questions about the decline in analog semiconductor stocks, the turbulence in the software sector, Amazon's 5% drop on Friday, and concerns about the outlook for Nvidia and Snowflake. There was also curiosity about the persistent six-day slides of stocks like Arista Networks and Broadcom and whether any analysts were offering supportive perspectives.

This week is expected to be busy, with off-quarter earnings reports from Nvidia, Snowflake, Intuit, and MongoDB, as well as events such as analyst days for companies like Guidewire, Criteo, and Fortinet. Other notable gatherings include updates from big names like Microsoft, Qualcomm, and STM.

Callahan also shared insights from Goldman's Sector Specialist team, which noted contrasting trends in U.S. financials and healthcare. Financials are on track for their best month of the year, with investors favoring stock-specific ideas ahead of the GS Financials Conference in December. In contrast, healthcare posted its worst relative performance in over 15 years against the S&P 500, struggling with both macroeconomic challenges and sector-specific hurdles.

As for generative AI, two primary storylines loom ahead of Nvidia's earnings. First, there's growing debate about whether the infrastructure layer—particularly custom versus merchant silicon and spending trajectories—might be nearing peak optimism. Second, there's speculation about the narrative shifting "up the stack" to applications like AI agents and assistants, which could make 2025 a pivotal year for broader AI adoption. Callahan referred to Goldman's recent research for insights on corporate commentary about generative AI usage during Q3 earnings calls.

Investors are also keeping an eye on lagging 2025 themes that could see a turnaround. Stocks like Square, Atlassian, Snowflake, and Pinterest, among others, might find favor again as sentiment shifts. Additionally, there's some focus on TMT short momentum, with a recent 33% rally in this basket aligning with previous episodes, which could embolden some to fade the move.

Examining the curious divergence between software and semiconductor stocks, Callahan observed that software displayed surprising strength early last week. This was driven by better-than-expected earnings from companies like ServiceNow and SAP, coupled with a lack of significant movement in interest rates and optimism about AI advancing to the application layer. On the other hand, semiconductors struggled, weighed down by geopolitical uncertainties, slower-than-expected demand in non-China markets, and debates around the future of generative AI.

Small and medium-sized businesses (SMBs) emerged as another post-election theme, with stocks tied to this segment showing signs of potential improvement. Callahan highlighted correlations between the SMB Index and certain stock baskets, suggesting opportunities for investors seeking exposure to this area.

Finally, Callahan spotlighted several charts to illustrate broader market dynamics. These included government spending trends, election-related sector rotations, and the struggles of U.S. healthcare stocks, which recently hit a 15-year low against the S&P 500. Other notable observations included a post-election surge in U.S. manufacturing sentiment, which could indicate shifting industrial trends.

In summary, Callahan's analysis underscores a complex and rapidly evolving market environment. While last week presented significant challenges, the tech sector's resilience and a packed calendar of catalysts suggest there are still opportunities for investors to navigate the uncertainties ahead.