Nasdaq 100 enters correction territory as AI tailwind fades

The Nasdaq 100 Index has entered correction territory on Friday, marking a sharp reversal in sentiment from few weeks back.

Today's selloff has been triggered by a softer-than-expected jobs report for July. The index, which is heavily weighted towards technology shares, dropped by 2.3% at the market open.

"We are adjusting our call to reflect a 25 bp cut in September and another one following in December," Jefferies strategists wrote in a note.

On the other hand, Citi economists wrote that the Fed may be forced to deliver at least one 50bp rate cut this year as economic data quickly deteriorates. 

Investors are shifting away from large technology stocks that had been market pillars earlier in the year. Nasdaq 100 has now retreated more than 10% from a high reached last month, crossing the threshold commonly used to define a market correction.

Despite the downturn, the index has still maintained an approximate 10% gain since the beginning of the year.

The recent slump has been exacerbated by subpar quarterly earnings reports from major tech companies such as Amazon (NASDAQ:AMZN) and Intel (NASDAQ:INTC). These results have contributed to the growing investor unease, as well as the fact that the expected financial boost from AI technology has failed to materialize.

Moreover, other prominent tech giants like Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) have also reported earnings that fell short of expectations earlier in the earnings season. The Nasdaq 100 experienced a significant 3.7% fall on July 24, marking its largest single-day loss since October of the previous year.

In contrast to the broader trend, some tech companies like Meta Platforms (NASDAQ:META) have delivered strong earnings reports.

Nevertheless, the overall sentiment of the earnings season has not been enough to alleviate investor concerns about the growth prospects of artificial intelligence and other key tech segments.