MW Why weak jobs data means investors should cut back bets on big U.S. tech names

By Jamie Chisholm

The Fed cutting rates tends to see the equal-weighted S&P 500 outperform, says Jefferies

Futures early Monday suggest U.S. stocks will recover a portion of the previous session's chunky fall. The S&P 500's SPX 1.6% retreat on Friday, coming in the wake of soft jobs data and a resurgence of tariff angst, was its biggest percentage decline since May 21, and sparked concerns that further weakness was on the cards.

But many of the market's more bullish observers remain optimistic, despite the chance, some warn, of short-term difficulties.

The equities strategy team at Jefferies note there will now be a roughly seven-week window "during which the economy may have to contend with a weakening labor market and limited support from the Fed." The Fed's next rate-setting meeting concludes on September 17, when it is widely expected to trim official borrowing costs by 25 basis points to a range of 4.00% to 4.25%.

But, in a note published over the weekend, Jefferies adds: "It's a view that may seem tougher to pitch after this week, but we continue to believe the path for equities remains higher."

Crucially, they reckon that concerns about a slowing economy will be counteracted by the fact that second-quarter results show "the backdrop has been strong and stable enough to beat tepid expectations."

They note that two-thirds of S&P 500 companies have reported and 85% of those have beat Wall Street expectations. That's driven earnings forecast revisions higher, and stocks tend to follow.

However, the Jefferies team is getting concerned about big tech, which is now 44% of the S&P 500 by weight, easily the most ever and beating the previous record of 40.6% seen in February 2000.

Yes, the sector is still delivering the best results and is a "bastion of consistent performance amidst an uncertain backdrop," but they "are starting to be concerned with how much longer it can sustainably continue."

To be clear, Jefferies says it's not suggesting big tech is in a bubble. Indeed, if anything, it considers the sector a defensive trade, with the best chance to grow earnings in a murky economic environment.

However, in Jefferies' view that does not make big tech the best play now, for two reasons. First is that the trade is "long in the tooth" with valuations stretched, currently showing a spread versus the least expensive stocks in the 87th percentile (looking back through 2010.)

The second issue is that Friday's jobs numbers caused the market to price in a greater chance of Fed rate cuts, and that tends to be better for the rest of the S&P 500, even as the broader market declines, according to Jefferies.

"[M]ost of the bouts of significant SPX equalweight outperformance come when Fed funds is falling," they say.

Their chart below shows there have been several times over the past 35 years when Fed funds has started to dip and the equalweight S&P 500 outperforms the broader benchmark.

"Now, we aren't trying to argue for a significant downturn, or a massive selloff in tech. But a dovish Fed has tended to provoke regime change whether the overall benchmark is higher or lower. So, if Friday's payrolls told us anything, it's that the time to start rotating out of large-cap tech may finally be upon us," Jefferies concludes.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is lower, while oil prices (CL.1) dip after OPEC+ over the weekend said it would boost production again, and gold (GC00) is trading around $3,412 an ounce.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6238.01    -2.36%  -0.66%  6.06%   16.67% 
   Nasdaq Composite                                                     20,650.13  -2.17%  0.24%   6.94%   23.09% 
   10-year Treasury                                                     4.244      -17.30  -14.10  -33.20  44.60 
   Gold                                                                 3412.6     2.98%   1.98%   29.30%  39.17% 
   Oil                                                                  66.51      -0.70%  -2.08%  -7.46%  -10.02% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. economic data due Monday include factory orders for June, released at 10:00 a.m. Eastern.

Berkshire Hathaway $(BRK.B)$ earnings took a $3.8 billion hit from Kraft Heinz $(KHC)$ stake write-down.

Tesla shares $(TSLA)$ are higher after the EV-maker said it had approved a share award worth $29 billion to CEO Elon Musk.

Palantir Technologies (PLTR) releases its earnings results after the closing bell.

China is choking the supply of critical minerals to U.S. defense companies, according to the Wall Street Journal.

Swiss stocks CH:SMI fell as they got the first chance to react to the U.S. imposing tariffs of 39%.

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The chart

The relative strength of tech titans versus the S&P 500 has continued to astound, as noted above and as the chart from Ned Davis Research shows. But this is happening as the percentage of S&P 500 companies with year-on-year sales growth of more than 15% hits multi-year lows, noted Pat Tschosik, chief thematic strategist and Philippe Mouls, analyst.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   AMZN    Amazon 
   PLTR    Palantir 
   AAPL    Apple 
   OPEN    Opendoor Technologies 
   AMD     Advanced Micro Devices 
   GME     GameStop 
   NIO     NIO 
   UNH     UnitedHealth 

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August 04, 2025 06:35 ET (10:35 GMT)

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