Big tech fatigue weighs on US equities ahead of non-farm payrolls

Tech rotation and AI concerns drive market divergence

United States (US) equity markets closed lower on Friday, with tech stocks leading the retreat as traders took profits after Thursday’s rebound and reassessed the broader artificial intelligence (AI) trade. For the week, the Dow Jones gained 311 points (+0.60%), while the S&P 500 fell 1.95% and the Nasdaq 100 dropped 4.24%, weighed down by the out-of-favour Magnificent Seven.

This rotation out of big tech has become one of the defining themes as we head toward the end of the first half of 2026. As things stand, the unfashionable Russell 2000 is outperforming the Nasdaq 100, up around 21.28% year-to-date compared with roughly 15.32% for the tech-heavy index.

The shift reflects renewed investor unease over the enormous AI-related capital expenditure being undertaken by the biggest names and increasing uncertainty about when those investments will translate into earnings growth that justifies current valuations.

This was one of the three key risks we highlighted this time last week here. The other two were Middle East peace fragility and a hawkish Federal Reserve (Fed) under new Chair Kevin Warsh.

While there has not been too much in the way of fresh hawkish Fed commentary since that article, we have seen, for the second week running, some re-escalation in Middle East tensions over the weekend, with the US and Iran exchanging fire after two vessels were struck in the Strait of Hormuz.

Somewhat predictably, this has been followed by de-escalation this morning before the re-opening, on reports that the US and Iran will pause strikes and allow vessels to move freely as technical talks continue on the memorandum of understanding.

Looking ahead, month- and quarter-end rebalancing flows are likely to play some role in market movements over the next two sessions, while from a data perspective all eyes will be on Thursday’s non-farm payrolls report previewed below.

US: non-farm payrolls

Date: Thursday, 2 July at 10.30pm AEST

Last month, US non-farm payrolls added 172,000 jobs in May, following an upwardly revised 179,000 gain in April, while the unemployment rate held steady at 4.3%.

After a run of stronger jobs reports and the hawkish tone at the 17 June Federal Open Market Committee (FOMC) meeting under new Fed Chair Kevin Warsh, Thursday’s June jobs report will be closely scrutinised for fresh evidence on the health of the labour market.

Consensus expectations point to a gain of around 115,000 jobs in June, with the unemployment rate forecast to hold steady at 4.3%. Warsh’s comments have placed extra weight on the data: a strong print could reinforce the case for tighter policy later this year, while a soft outcome would ease pressure on rate hike expectations.

The US interest rates market starts the week pricing in a 30% chance of a 7 basis point (bp) Fed rate hike next month, with a full 25 bp Fed rate hike almost fully priced for October.

US unemployment rate chart

Nasdaq 100 technical analysis

From its late-March low of 22,841, the Nasdaq 100 launched a jaw-dropping 35% rally in just over nine weeks to reach a record high of 30,762 in early June. The rally was in line with our bullish calls, although it did hit the 30,000 target some six months earlier than we were expecting. In that context, the current pullback is hardly surprising.

Looking ahead, the current leg lower from the 30,642 high appears to be the third leg (wave C) of a three-wave Elliott Wave ABC correction, which, from an equal swings basis, targets a pullback towards 28,000ish.

In this context, provided the Nasdaq 100 holds above support or bases at 28,000ish on a sustained basis, we would then look for a rebound back to the 30,762 record high, before the next upside target at around 32,000. Be aware that a sustained break below the 28,000ish support area would open the door to a deeper correction into the 27,200 - 27,000 region.

Nasdaq 100 daily candlestick chart

Dow Jones technical analysis

From its late-March low of 45,063, the Dow Jones extended its rally to hit a fresh record high of 52,661 on Thursday before pulling back 735 points into the close.

This has left signs of a loss of momentum on both the daily and weekly candles, along with continued bearish relative strength index (RSI) divergence.

With that in mind, if the Dow Jones were to remain below its record high, a sustained break below short-term support at 51,300 - 51,200 would be a solid indication that a pullback towards stronger support at 50,000 is underway.

Dow Jones daily candlestick chart

• _{Source: TradingView. The figures stated are as of 29 June 2026. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}