Stock Market Today: Tech Stocks Take a Tumble

An increase in weekly jobless benefits applications and profit-taking in tech stocks sent the major indices to steep declines Thursday.

The corporate earnings calendar provided plenty of reasons for positivity Thursday, but Wall Street wasn't having it, as slight early declines snowballed into a sizable single-day dip.

Microsoft (MSFT (opens in new tab), -4.4%) tumbled despite cruising past quarterly expectations, including revenues that jumped 13% year-over-year against the COVID-19 grain.

"MSFT delivered a solid print," writes Stifel analyst Brad R. Reback (Buy, $220.00 price target), "with better-than-expected top-line and bottom-line results as Work/Learn/Play from home dynamics (Gaming, Surface, Windows) more than offset SMB transactional headwinds in Office and Server."

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Other positive results came from Cottonelle parent Kimberly-Clark (KMB (opens in new tab), +2.2%), which neared new highs after blowout Q2 results and the reinstatement of share buybacks, and Tesla (TSLA (opens in new tab), -5.0%), which produced a fourth straight quarterly profit.

But weekly unemployment claims turned higher for the first time since March; a more-than-expected 1.42 million Americans filed for jobless benefits for the week ended July 18. Moreover, the GOP was still struggling later Thursday to agree to various components of a $1 trillion stimulus proposal, though it's expected to include another round of $1,200 checks.

Small-cap stocks weathered Thursday's headwinds well, finishing flat at 1,490. The Dow Jones Industrial Average closed 1.3% lower to 26,652 and the S&P 500 fell 1.2% to 3,235. But selloffs in technology's biggest names weighed heaviest on the Nasdaq Composite, which declined 2.3% to 10,461.

Tech Is a Long-Term Investment, Too

The "Big Five" giveth, and they also taketh away.

Technology giants Microsoft, Apple (AAPL (opens in new tab), -4.6%), Amazon.com (AMZN (opens in new tab), -3.7%), Alphabet (GOOGL (opens in new tab), -3.1%) and Facebook (FB (opens in new tab), -3.0%) represent roughly 22% of the S&P 500 because of their size. That has been advantageous so far, as their collective 34% total return through yesterday is what's been keeping the index marginally positive. However, when they have a down day like today, you'll feel it.

And at least for now, try to resist worries that near-term weakness in large-cap tech will herald in a 2000-esque bubble pop.

"While many fear the current environment is like 2000 'dot com' bubble, the macro backdrop suggests otherwise," Canaccord Genuity equity strategist Tony Dywer writes in a Thursday note to clients. Instead, he says, "We believe the combination of incredible monetary and fiscal stimulus, historic excess liquidity, a synchronized global economic recovery, and significant underperformance of the economically sensitive areas set the stage for a long-term rotation into the Industrial, Financial, Materials, and Consumer sectors."

While a change in leadership still wouldn't be good for the aforementioned mega-cap names, just remember: Patience is a virtue – even in tech stocks.

Relatively short-term bouts of volatility shouldn't shake your from buy-and-hold strategy as long as you still believe your picks will continue to benefit from long-term trends, be it in e-commerce, work-from-home, even electric vehicles.

The same goes for artificial intelligence stocks, where the developing technology of "smart" machines is expected to deliver explosive growth throughout this whole decade. But if AI stocks seem a little too unstable for you, consider riding the entire trend higher via diversified baskets of the industry's leading players. Here, we highlight five AI ETFs that let investors leverage this next great technological frontier.

Kyle Woodley was long AMZN, FB and MSFT as of this writing.

Kyle Woodley
Senior Investing Editor, Kiplinger.com

Kyle is senior investing editor for Kiplinger.com. As a writer and columnist, he also specializes in exchange-traded funds. He joined Kiplinger in September 2017 after spending six years at InvestorPlace.com, where he managed the editorial staff. His work has appeared in several outlets, including U.S. News & World Report and MSN Money, he has appeared as a guest on Fox Business Network and Money Radio, and he has been quoted in MarketWatch, Vice and Univision, among other outlets. He is a proud graduate of The Ohio State University, where he earned a BA in journalism.