2025-09-03
The pullback is being driven by tech weakness as investors take profits in AI‑linked leaders into September, while rising long bond yields pressure growth valuations and spill into the broader S&P 500 tape.
Index moves: the S&P 500 and Nasdaq each fell by more than 1 percent in the latest session as megacap tech led declines, reflecting a concentrated leadership unwind.
Long bonds: global long‑dated yields rose in the past day and tightened financial conditions that weigh on equity multiples, particularly in long‑duration sectors.
Gold: the metal hit a fresh record in global trading as hedging demand climbed alongside fiscal concerns and higher term premia, adding to the risk‑off tone.
Thirty‑year yield: recent live notes flagged the U.S. long bond nearing the 5 percent area, which has repeatedly capped equity rallies this year by compressing valuations. (Bloomberg)
Selling pressure arrived with the start of September as policy headlines and seasonality combined with higher long‑dated yields to pull major benchmarks lower into the close.
The tone was risk‑off across regions, with bonds setting direction, gold marking a record, and equities adjusting to tighter financial conditions into a heavy autumn calendar.
After an extended run, investors trimmed exposure to AI beneficiaries and long-duration growth, turning prior leadership into a drag as positions reset for September's risk calendar. Because recent gains were concentrated in megacap tech, even modest profit-taking in this cohort translated quickly into broader benchmark losses through correlation and passive flows.
At the same time, higher long-end yields lifted discount rates on future earnings and compressed multiples in growth sectors where cash flows are further out in time, a classic headwind for tech. With the U.S. 30-year yield tracking toward the 5 percent area in recent coverage, valuation support for rate-sensitive technology has been thinner at the margin into early September.
Caution around frothy AI valuations and momentum concentration made semiconductors and platform names vulnerable once yields firmed and seasonality turned, prompting a quick de‑risk.
Coverage highlighted rotation out of high‑beta AI names at the month's start, underscoring the risk of sharp factor reversals after outsized year‑to‑date gains in the leaders.
A U.S. federal appeals court ruling that complicated tariff policy added headline risk to an already cautious setup, reinforcing the impulse to take profits in crowded winners.
Traders framed the week as a reset given the overlap of policy uncertainty, seasonal weakness, and stronger safe‑haven signals from gold during a bond‑led selloff.
Market daybooks flagged September's historically poor hit rate for U.S. equities, and the effect appeared early with broad selling pressure as the month began on higher yields.
A heavy calendar of issuance and data has kept investors defensive, strengthening the link between rising term premia and equity multiple compression near prior highs.
Higher real rates lift hurdle rates for long‑duration cash flows, which predominantly define tech and AI narratives, and that pushes price-to-earnings and enterprise multiples lower.
Add a richer starting valuation base, and the index becomes sensitive to small rate shifts, so long‑end moves can catalyse outsized de‑risking in megacap technology.
Softer long‑end yields, or clearer guidance on the policy‑rate path, that eases discount‑rate pressure on growth valuations and steadies risk appetite.
Breadth improvement beyond defensives that signals buyers are willing to re‑risk outside a narrow technology leadership group across the S&P 500.
Earnings or guidance that reaffirm durable AI demand and capital‑expenditure visibility, helping semiconductors stabilise order expectations. (Fortune)
Another leg higher in long bond yields that compresses multiples further and sustains de‑risking in growth sectors that dominate index leadership.
A heavy September slate of issuance and data that keeps fiscal and inflation worries in focus, reinforcing defensive positioning near month‑start.
Continued profit‑taking in semiconductors and megacap platforms leaves the index without clear leadership to pivot higher in the near term.
Long‑dated yield moves, changes in term premia, and any follow‑through in gold, all of which are key barometers for the equity risk premium this week. (Reuters)
S&P 500 breadth and sector rotation to judge whether selling remains tech‑led or broadens toward cyclicals and defensives into the next data prints.
AI‑linked updates on orders and capex that could improve visibility for semiconductors and platform names during a seasonally fragile window.
Tech weakness is driving the pullback as investors trim AI‑linked winners into a seasonally fragile window, while higher long yields squeeze growth valuations across the S&P 500.
Stabilisation likely needs some relief on the rates front, or fresh confirmation that AI demand is durable enough to support semiconductors and platform earnings through autumn.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment, or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person.
