Written by Linh Tran, Market Analyst at XS.com
The S&P 500 ended yesterday’s session with a sharp decline of 1.69%, marking one of the most significant pullbacks of the month and clearly reflecting the growing weakness in investor sentiment.
The spotlight of the sell-off remained firmly on technology stocks, with major names like Tesla plunging 5.75%, Nvidia down 4.51%, and both Apple and Microsoft also seeing steep declines. These stocks, once the key drivers of the market’s recovery, have now become focal points of capital outflows amid high valuations, uncertain business outlooks, and an increasingly defensive investor mindset.
The lofty growth expectations previously placed on sectors such as artificial intelligence (AI) and electric vehicles (EVs) are now facing serious challenges—especially as earnings season kicks off, and investors are demanding tangible results rather than relying solely on narratives. Furthermore, macroeconomic risks such as prolonged high interest rates and escalating U.S.–China trade tensions have significantly dampened risk appetite toward the tech sector.
One of the key factors driving the increased selling pressure is the persistent uncertainty surrounding trade policy, particularly the renewed friction between the U.S. and China. Recent statements from the administration of President Donald Trump have revived concerns reminiscent of the 2018–2019 trade war period, which previously rattled global markets. The risks extend beyond rising costs and potential supply chain disruptions; retaliatory measures from China could also bring long-term repercussions to global financial stability.
Tensions escalated further when President Trump publicly called for the removal of Federal Reserve Chair Jerome Powell—an extraordinary move in modern monetary policy history. This rare public rebuke highlights deepening friction between the White House and the central bank. At a time when the market is hoping for policy stability and possibly rate cuts later this year, such political interference only adds to the fragility of those expectations. Concerns over the erosion of Fed independence are beginning to weigh on market confidence, particularly for rate-sensitive indices like the S&P 500.
Looking ahead, the market’s focus will shift to the Q1 earnings season, with Tesla—a company with outsized influence on both the tech sector and the S&P 500—set to report. In a high-rate, trade-constrained, and valuation-sensitive environment, these earnings reports are more than just about profits; they are a litmus test for companies’ ability to sustain growth and resilience in an increasingly uncertain economy.
At present, the S&P 500 finds itself caught between two opposing forces: on one side, hopes for monetary easing, which continues to offer psychological support; and on the other, growing pressure from trade uncertainty, geopolitical tensions, and earnings volatility. In the short term, the market is likely to remain range-bound with a bias toward weakness, until a clear catalyst—such as a firm signal from the Fed or signs of de-escalation from China—emerges to reshape global investor expectations.
