Tech Sell-Off Pulls Nasdaq Down 2.2% as Rate Hike Fears Grow

The Nasdaq composite fell 2.2% in early trading Tuesday as a sell-off in major technology companies extended from Asian markets to the U.S. The downturn is fueled by increasing expectations of interest rate hikes later this year, which traders fear could dampen economic growth and impact the recent surge in artificial intelligence-related stocks.

The S&P 500 also experienced a decline, falling 1.5% early Tuesday. This comes after the index saw 11 gains in the last 12 weeks, largely driven by the technology sector. Micron Technology shares slumped 12%, and other chip companies like Intel and Qualcomm saw significant drops in overnight trading. Companies specializing in memory and data storage, such as SanDisk and Seagate, also experienced substantial losses.

Futures for the S&P 500 had fallen 1.2% before the market opened, while Dow Jones Industrial Average futures retreated 0.4%. Technology-heavy Nasdaq futures tumbled 2.6%, following a 1.3% loss on Monday.

Elon Musk's SpaceX, which has an AI division, also saw its stock slip 1% before the bell, adding to a 16.4% drop earlier in the week. SpaceX trades on the Nasdaq, a market that has seen heavy selling as investors grow anxious about the significant spending by artificial intelligence companies and the potential for rising U.S. interest rates to increase borrowing costs for growth.

SpaceX shares were trading just above $156 per share before the bell, down from highs above $200 last week but still above its market debut price.

Elsewhere, global markets also showed weakness. In Europe, France's CAC 40 dipped 0.6%, Germany's DAX fell 1%, and Britain's FTSE 100 declined 0.5%. Earlier in Asia, Japan's Nikkei 225 lost 3.6%, South Korea's Kospi tumbled 10.0% from previous record highs, Hong Kong's Hang Seng slipped 1.8%, and the Shanghai Composite shed 1.4%.

Bond yields stabilized after climbing for the past week. This rise was driven by speculation that the Federal Reserve might increase interest rates to curb accelerating inflation, partly attributed to increased oil prices following the Iran conflict. Economists predict that a U.S. consumer inflation measure, due Thursday, could rise to 4.1% in May from 3.8% in April.

The yield on the 10-year Treasury settled around 4.49% early Tuesday, an increase from 4.43% a week ago and 3.97% prior to the conflict.

Traders are now placing nearly a 90% probability on the Federal Reserve raising its federal funds rate at least once by the end of the year, a significant increase from the 57% chance seen just a week ago, according to data from CME Group.

These rising global bond yields, driven by inflation worries, pose a threat to economic slowdowns and have already increased rates for mortgages and other loans. Higher yields also negatively impact investment prices, particularly for those considered most expensive, placing additional pressure on companies whose stock values have soared amid the artificial intelligence technology boom.