Tech stocks valuation versus S&P 500 after midterm selloff, Digi Mart USA News: Wall Street rallied the day after the midterm elections but woke up Thursday to tech’s worst day since the 2020 COVID crash. Excluding the artificial intelligence trade, however, most stocks barely moved.
The equal-weight S&P 500 (RSP), a stand-in for the typical stock, closed at a record Wednesday and ended the week within about 1% of where it started. The headline indexes were not as fortunate.
The S&P 500 (^GSPC) and Nasdaq (^IXIC) each fell about 3% for a fourth straight losing week, capping a week of volatility that ended with a Friday bounce in chip stocks. The selling made technology stocks cheaper than the broader market, something few investors would have predicted a year ago.
Tech stocks in the S&P 500 (XLK) traded at about 17 times expected earnings this week, below the broader index’s 18 times for the first time since 2017, according to Keith Lerner, chief investment officer at Truist Wealth, in a note Thursday. At the October 2025 peak, the sector traded at 32 times.
“At a 32.0x P/E last year, the market had baked in a lot of good news,” Lerner wrote. “Arguably, at almost half that level, the market is already pricing in a lot of bad news.”
Chipmakers took the heaviest losses. The PHLX Semiconductor Index (^SOX) fell for a fifth straight week and lost nearly 30% over that stretch, according to Yahoo Finance calculations.
Micron (MU) and Sandisk (SNDK) each lost more than 20% this week alone.
Lerner described “something of a buyers’ strike in tech” and told Yahoo Finance on Friday that chips are the first to feel any slowdown in data-center construction, a risk that weighed on the midterm elections. A slower build-out could, however, ease the cash drain on the largest AI spenders.
“If this forces a little bit of a slowdown and maybe a little bit of positive in cash flow, I think that could actually elongate the cycle,” he said.
Truist advises staying overweight in U.S. large caps and adding small caps “as a partial hedge against periodic sharp rotations away from megacap tech.” The firm also notes that stocks have risen in the year after every midterm election since 1946.
The S&P 500 has had 33 streaks of four or more losing weeks since 1990. Three months later, it was higher about 80% of the time, with a median gain of 6%, according to Yahoo Finance calculations.
That compares with a typical three-month return of about 3% after any week.
The exceptions occurred during the dot-com bust and the 2008 financial crisis, when the S&P 500 kept falling for another year.
Michael Martin, founder of TraderMindset.com, is not buying the dip. “It’s a time to harvest cash right now,” Martin, who runs a commodity futures strategy with Victor “Trader Vic” Sperandeo, told Yahoo Finance.
“I don’t think these are buying opportunities. Everything’s in a downtrend.”
Martin is also unconvinced by cheaper tech valuations. “Lower prices mean lower market cap.
It doesn’t mean better value,” he said. He said he would only “nibble” with call options if the S&P 500 holds its 200-day moving average, a widely watched trend line.
“We are moving toward a situation where a little good news could go a long way.”
