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Tech stocks could face more losses as AI spending concerns and historical pattern hints more volatility.
Despite near-term risks, the long-term technology bull market may remain intact.
VOO, DIA, XLY, WCLD and IVE offer diversified ways to navigate tech volatility and sector rotation.
The recent technology selloff may not be over yet. Historical trends suggest that the current correction could deepen before the sector finds a bottom.Note that the tech-heavy Nasdaq 100 Index's October decline was 6.7%, its worst month since the tariff freakout in March 2025, per Bloomberg, as quoted on Yahoo Finance. State Street SPDR S&P 500 ETF Trust (SPY - Free Report) fell about 1.1% in October.
According to Truist Chief Market Strategist Keith Lerner, the S&P 500 technology sector has experienced six corrections of at least 10% since 2023, including the ongoing decline. Four of those pullbacks ranged between 14% and 27%, leaving room for further weakness, as quoted on Yahoo Finance.
According to Truist chief investment officer Keith Lerner, a "combination of historical pullbacks, valuation, and technical support suggests potential downside of roughly 2% to 8% for tech from current levels," as mentioned on Yahoo Finance.
Investor concerns are shifting from AI demand to the returns on massive infrastructure investments. Heavy spending by major technology companies, coupled with concerns about weakening free cash flow, has made investors more cautious.
A Correction, Not Necessarily a Bear Market
Despite the recent losses, some strategists believe the technology selloff could be a healthy correction rather than the start of a prolonged bear market.
The pressure remains concentrated in technology and communication services stocks, suggesting sector rotation rather than a broad-based equity market retreat. The recent pullback has also made technology valuations more attractive.
Historical Gains Put the Pullback in Perspective
The broader technology rally has been substantial since the current bull market began in October 2022. During this period, the S&P 500 has gained approximately 111%, while technology stocks have advanced about 230% and semiconductor stocks have surged more than 380%, as mentioned on Yahoo Finance.
Against this backdrop, a 10% correction in technology stocks does not necessarily signal a major trend reversal. Lerner believes the longer-term technology uptrend remains intact, although the current corrective phase may not be over.
ETF Picks
Against this backdrop, below we highlight a few ETFs that can be played now.
Big tech earnings showed that cloud computing is still in a booming phase. Microsoft Azure generated $33.2 billion in revenue during the first quarter of fiscal year 2027 (ended September 30, 2026), marking a 48% year-over-year growth rate.Amazon Web Services (AWS) generated $46 billion in Q3, marking a 39% increase year over year. Alphabet's Cloud revenues surged 103%.
Investors can consider playing the S&P 500 ETF VOO, allowing investors to ride the long-term bull market while avoiding excessive concentration in volatile technology stocks. Its broad-market exposure (though slightly tech-heavy) makes it a relatively balanced way to navigate the ongoing tech correction and likely recovery.
State Street SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report)
DIA offers exposure to 30 established blue-chip U.S. companies, providing a way to diversify beyond high-valuation technology stocks. Its focus on mature, financially strong businesses may help investors navigate AI-related volatility and sector rotation. This is a good pick for those who believe that AI enthusiasm is over.
State Street Consumer Discretionary SPDR ETF (XLY - Free Report)
This consumer discretionary ETF gained 6% over the past month.U.S. holiday sales are set to hit record highs, supported by resilient consumer spending. Consumer spending grew 3.8% in Q3, in line with the rate in Q2 and the strongest since the end of 2024, as quoted on Yahoo Finance. Consumer confidence is improving, despite sticky inflation and higher gas prices.
IVE offers exposure to undervalued large-cap U.S. stocks, making it an attractive option as investors rotate away from expensive growth shares. Its resilience amid AI-driven market volatility. Moreover, value stocks and ETFs fare better in a high-rate environment.
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More Pain Ahead for Tech & Broader Market ETFs?
Key Takeaways
The recent technology selloff may not be over yet. Historical trends suggest that the current correction could deepen before the sector finds a bottom.Note that the tech-heavy Nasdaq 100 Index's October decline was 6.7%, its worst month since the tariff freakout in March 2025, per Bloomberg, as quoted on Yahoo Finance. State Street SPDR S&P 500 ETF Trust (SPY - Free Report) fell about 1.1% in October.
According to Truist Chief Market Strategist Keith Lerner, the S&P 500 technology sector has experienced six corrections of at least 10% since 2023, including the ongoing decline. Four of those pullbacks ranged between 14% and 27%, leaving room for further weakness, as quoted on Yahoo Finance.
According to Truist chief investment officer Keith Lerner, a "combination of historical pullbacks, valuation, and technical support suggests potential downside of roughly 2% to 8% for tech from current levels," as mentioned on Yahoo Finance.
Investor concerns are shifting from AI demand to the returns on massive infrastructure investments. Heavy spending by major technology companies, coupled with concerns about weakening free cash flow, has made investors more cautious.
A Correction, Not Necessarily a Bear Market
Despite the recent losses, some strategists believe the technology selloff could be a healthy correction rather than the start of a prolonged bear market.
The pressure remains concentrated in technology and communication services stocks, suggesting sector rotation rather than a broad-based equity market retreat. The recent pullback has also made technology valuations more attractive.
Historical Gains Put the Pullback in Perspective
The broader technology rally has been substantial since the current bull market began in October 2022. During this period, the S&P 500 has gained approximately 111%, while technology stocks have advanced about 230% and semiconductor stocks have surged more than 380%, as mentioned on Yahoo Finance.
Against this backdrop, a 10% correction in technology stocks does not necessarily signal a major trend reversal. Lerner believes the longer-term technology uptrend remains intact, although the current corrective phase may not be over.
ETF Picks
Against this backdrop, below we highlight a few ETFs that can be played now.
WisdomTree Cloud Computing ETF (WCLD - Free Report)
Big tech earnings showed that cloud computing is still in a booming phase. Microsoft Azure generated $33.2 billion in revenue during the first quarter of fiscal year 2027 (ended September 30, 2026), marking a 48% year-over-year growth rate.Amazon Web Services (AWS) generated $46 billion in Q3, marking a 39% increase year over year. Alphabet's Cloud revenues surged 103%.
Vanguard 500 Index Fund ETF Shares (VOO - Free Report)
Investors can consider playing the S&P 500 ETF VOO, allowing investors to ride the long-term bull market while avoiding excessive concentration in volatile technology stocks. Its broad-market exposure (though slightly tech-heavy) makes it a relatively balanced way to navigate the ongoing tech correction and likely recovery.
State Street SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report)
DIA offers exposure to 30 established blue-chip U.S. companies, providing a way to diversify beyond high-valuation technology stocks. Its focus on mature, financially strong businesses may help investors navigate AI-related volatility and sector rotation. This is a good pick for those who believe that AI enthusiasm is over.
State Street Consumer Discretionary SPDR ETF (XLY - Free Report)
This consumer discretionary ETF gained 6% over the past month.U.S. holiday sales are set to hit record highs, supported by resilient consumer spending. Consumer spending grew 3.8% in Q3, in line with the rate in Q2 and the strongest since the end of 2024, as quoted on Yahoo Finance. Consumer confidence is improving, despite sticky inflation and higher gas prices.
iShares S&P 500 Value ETF (IVE - Free Report)
IVE offers exposure to undervalued large-cap U.S. stocks, making it an attractive option as investors rotate away from expensive growth shares. Its resilience amid AI-driven market volatility. Moreover, value stocks and ETFs fare better in a high-rate environment.