MW Stocks rebound on Friday, but this week's tech rout echoes lessons from the dot-com bubble

By Isabel Wang

The Nasdaq Composite is on pace for its worst week since November despite Friday's rebound

A shift in leadership failed to save the stock market from the tech selloff this week.

This week's stock selloff was a reminder that even a shift in market leadership has its limits, as it failed to shield investors from a sharp pullback in technology names that brought echoes of the dot-com bubble.

Despite Friday's rebound, two of the three major stock indexes were still on pace to finish the week lower, as investors have grown increasingly worried about megacap tech firms' heavy AI-related capital spending and fears that fast-moving AI innovations could upend existing software companies' core businesses. Other macro concerns, such as a weakening labor market and upcoming nuclear talks between the U.S. and Iran, also weighed on market sentiment.

The Nasdaq Composite COMP had tumbled as much as 3.9% for the week at one point Thursday, putting the index on pace for its worst week since last year's "liberation day" selloff in April. The tech-heavy index was clawing back some losses on Friday, though it remained on pace for its worst weekly performance since early November, according to FactSet data.

"Where goes tech, goes the market," said Brad Long, chief investment officer at Wealthspire. He told MarketWatch that once the tech trade starts to deflate, even strength among defensive and cyclical names lacks the firepower to overcome the drag on the broader market.

The S&P 500 SPX had fallen 0.9% on the week, at last check, while the Dow Jones Industrial Average DJIA was up 1.8% for the week, according to FactSet data.

See: Steady bond market shaken by jitters over the job market, U.S.-Iran nuclear talks

"You get a double-whammy in that the markets are upset about AI and AI spending, and they're also worried about AI taking everybody's jobs," said Brian Mulberry, senior portfolio manager at Zacks Investment Management. "AI is not just good vibes anymore, and investors finally have to decide who's a real business and who's not."

This week's selloff was notable because it came even as a so-called rotation trade continued to gather pace, with investors piling into sectors beyond Big Tech. Four of the S&P 500's 11 sectors have risen at least 3% for the week, led by the 5.8% advance in consumer staples XX:SP500.30 and the 4.6% climb in the energy sector XX:SP500.10. The S&P 500's materials XX:SP500.15 and industrial XX:SP500.20 sectors were also up 3.3% and 4.3%, respectively, according to FactSet data. The small-cap Russell 2000 RUT was also tallying another strong week of gains, even as the Nasdaq and S&P 500 struggled.

But those moves still proved too weak to offset the slump in tech stocks and lift the broader market, underscoring that a dominant stock sector could still drag down major indexes even if other smaller sectors continue to advance - a pattern all too familiar from the dot-com bust in 2000.

Lessons from the dot-com bubble

The stock market has seen a dramatic shift in market leadership over the past three months as investors rotated out of technology names and into other sectors.

Since the S&P 500's information-technology sector XX:SP500.45 peaked on Oct. 29, the energy sector has surged over 20% while tech has tumbled 11.2%. The S&P 500's materials sector was up 18.3% and consumer staples had risen 14% during the same period, according to data compiled by Deutsche Bank (see chart below).

"Despite more sectors rising than falling, the S&P 500 has gone essentially nowhere - held back by the sheer weight of its tech constituents," Jim Reid, global head of macro research and thematic strategy at Deutsche Bank, said in a Thursday client note.

SOURCE: BLOOMBERG, DEUTSCHE BANK

A similar pattern emerged ahead of the dot-com bubble's burst in the early 2000s, when the S&P 500's consumer staples, utilities XX:SP500.55 and healthcare XX:SP500.35 sectors all significantly outperformed the tech-related sectors before the tech pullback intensified and eventually overwhelmed gains in other corners of the stock market (see chart below).

As a result, "the following year turned into an extremely challenging one across the board," Reid noted.

SOURCE: BLOOMBERG, DEUTSCHE BANK

To be sure, Reid didn't draw a direct parallel between the two periods, but recent market actions suggest that the longer and deeper the selloff in the technology sector becomes, the harder it can be for the broader index to withstand the drag, he said.

But as Mulberry of Zacks Investment Management pointed out, strong earnings from companies outside of the tech sector could still help create a buffer between investors and more tech losses.

"I don't necessarily see this deep, broad decline lasting, at least not for the moment. You are going to get some really good earnings the next couple of weeks from some of the broader sectors outside of just technology, and that will certainly help stabilize [the stock market]," he said via phone on Thursday.

Investors will get earnings reports from some consumer-related and healthcare companies next week. Coca-Cola $(KO)$ and CVS Health $(CVS)$ will report on Tuesday, while McDonald's $(MCD)$ is scheduled for Wednesday and Moderna (MRNA) is up on Friday.

-Isabel Wang

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February 06, 2026 13:01 ET (18:01 GMT)

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