Why The Market's 'Moment of Pause' Might Be The Breather Tech Stocks Needed

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The record may be scratched, but the party in the U.S. stock market isn't over, according to several experts.

Analysts are sizing up this slump in the S&P 500 and the Nasdaq 100 and calling it "healthy" and a necessary "gut check" that will keep things moving along. After a torrid rally that drove benchmark indexes to a series of records, a momentary break helps stocks avoid getting overheated, they say. To be sure much of the S&P's and the tech-heavy Nasdaq's 2026 gains have come just in the last couple of months after the pair of indexes spent the early part of the year doing nothing.

This week's sharp sell-off—taking down high-flying chip stocks and hyperscalers alike—was to be expected, because the tech trade had gotten "crowded", according to Morgan Stanley Investment Management senior portfolio manager Andrew Slimmon, who describes the recent action as "good for the markets."1

"Ultimately what you don't want to see is so much euphoria that it ends badly," he said in an interview with CNBC on Tuesday morning.

The tech stock rout is stoking fears about an AI bubble, but experts say that the pause here will help the market avoid getting overheated.

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Experts point to a variety of factors recently tempering what has mostly been a festive atmosphere for the market.

Slimmon said changing expectations around the Federal Reserve's monetary policy—from "for sure cutting to maybe raising" interest rates—likely caused the recent rout.

The Federal Reserve last week, as expected, left its benchmark interest rate unchanged, but new Fed Chair Kevin Warsh delivered an unambiguously hawkish stance following the meeting, vowing to tame inflation. That has led market participants to pencil in the likelihood of higher interest rates and all but eliminate expectations of a cut. Traders are pricing in at least one interest rate hike by year's end from the Fed, according to CME Group's FedWatch tool.2

Higher rates are generally considered a headwind for growth stocks, because they increase borrowing costs for companies investing heavily to create future lines of business.

Wedbush tech analysts led by Dan Ives said the sell-off in the KOSPI, the benchmark index for stocks in South Korea, was spilling over to the U.S. tech sector.3 The country's stock market, even after its big tumble, is still up about 90% year to date on the back of big chip stock gains.

"Taking a step back we continue to believe that in this market we will continue to go through a number of 'gut check moments' in the tech trade," Ives wrote in a report published early Tuesday morning.

The other possibility: Investors are taking profits, Giuseppe Sette, co-founder of investment startup Reflexivity, said in an emailed statement on Monday, adding that this "moment of pause" in markets might not immediately turn into a recovery.

"It's entirely possible that large drawdowns, like the one we've seen, could attract buyers," he said, but that investors might be "more cautious" about jumping back into roiling markets.

The S&P 500 finished Tuesday's session down 1.4%, while the Nasdaq 100 dropped 3.3%. Even with two straight days of big declines this week, the S&P 500 and Nasdaq have gained 8% and 16%, respectively, since the start of 2026.

Meanwhile, the VIX, also known as the fear gauge, climbed 13% on Tuesday to just under 20, a level that is typically considered the dividing line between a market that's stable and one that's expected to remain volatile.