By Joy Wiltermuth and Isabel Wang
Tech stocks fell sharply Tuesday, but investors aren't bailing on the rest of the S&amp;P 500
Tech stocks fell Tuesday, deepening a rout that started in early June for highflying areas of the equity market.
Technology stocks tumbled on Tuesday, extending a swoon that began in early June, as investors anxiously await the historic SpaceX IPO later this week and retreat from hot parts of the artificial-intelligence playbook.
The concern is two-fold: For one, SpaceX (SPCX) is currently planning to supply the public with up to $86 billion worth of its shares; and two, there's the worry that investors will have to raise cash to buy up that supply by trimming stakes in their recent winners.
While those could be big reasons for investors to back out of tech, there's likely more to it than that. As Steve Sosnick, chief strategist at Interactive Brokers, put it, the increased supply via SpaceX shares may be contributing to &#34;bad psychology&#34; in the market and &#34;causing some investors to raise money to pay for it&#34; - but he doesn't think that's the main reason.
Sosnick sees the tech selling as directly related to &#34;fractures&#34; in the sector that Friday's selloff exposed. &#34;We saw customers aggressively buying Friday's dip, and when the usual bounce failed, it became hard to avoid the wave,&#34; he said.
Also read: This Big Tech investor's warning for traders: Watch out for the SpaceX IPO.
The S&amp;P 500's information-technology sector XX:SP500.45 closed 1.8% lower on Tuesday - its worst day since Friday, when it plunged 5.8%, according to FactSet. Worse yet was the nearly 10% drop in shares of Marvel Technology (MRVL) and a more than 4% decline in Micron Technology's stock (MU).
Semiconductor and memory stocks have seen extreme gains in the past two months, leading to anxiety around the narrow scope of the recent rally but also fear among investors not wanting to miss out on the action.
&#34;The good news is the market isn't getting crushed,&#34; said Ryan Detrick, chief market strategist at Carson Group, pointing to eight of the S&amp;P 500's SPX 11 sectors still pushing higher on Tuesday.
With semiconductor stocks gaining 70% in the past two months, &#34;everyone knew they were due for a pause,&#34; Detrick said. After all, the &#34;lifeblood&#34; of any bull market is rotation, he noted - which was evident on Tuesday, as tech and other hot areas of the market dropped while the S&amp;P 500's real-estate sector XX:SP500.60 surged 2.1%.
The AI whiplash was playing out beyond U.S. boarders, with South Korea's stock market KR:180721 also caught up in the buying-and-selling frenzy.
Read: A massive 16% market swing just rocked South Korea over 24 hours. The retail 'ants' at the wheel are driving dangerously.
Beyond the SpaceX excitement - and dread - Wall Street was getting ready for Wednesday's release of May's consumer-price index, which is expected to show the yearly rate of inflation pushing above 4%, as well as a reading of wholesale prices a day later.
After stripping out volatile food and energy prices, a cooler-than-expected CPI print would allow the Fed's interest-rate-setting committee to keep its target policy rate at 3.5% to 3.75% &#34;with little urgency to move in either direction, confident in the labor market's resilience while keeping an eye on the risk of future energy pass-through to the core,&#34; said Will Compernolle, a macro strategist at FHN Financial, in a Tuesday client note.
A hotter inflation reading would &#34;imply accelerating inflation independent of the war, firm market expectations for a 2026 [rate] hike, and encourage hawkish Fed officials to project policy tightening.&#34;
See: Inflation could top 4% this week. The bond market wants Fed Chair Warsh to prove he'll fight it.
Detrick said higher inflation makes additional rate cuts from the Fed unlikely, but also points to a U.S. economy that's turning a corner and improving. That backdrop should support the rotation in stocks that's been evident in the past few sessions. &#34;Maybe people go to other underloved areas like value,&#34; he said.
The Dow Jones Industrial Average DJIA gained 0.2% Tuesday, while the S&amp;P 500 fell 0.3% and the Nasdaq Composite Index COMP closed down 1%, according to FactSet.
Tomi Kilgore contributed
-Joy Wiltermuth -Isabel Wang
This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
06-09-26 1631ET

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Tech stocks fell sharply on Tuesday, extending a rout from early June as investors anticipate SpaceX's $86 billion IPO. The anticipated share supply created 'bad psychology,' prompting some to trim winners to raise cash. While the S&P 500 Information Technology sector dropped 1.8%, broader market rotation occurred, with real estate surging. Investors also await upcoming CPI data, which may influence Federal Reserve rate expectations.

- Tech stocks experienced a sharp decline on Tuesday, continuing a downward trend that began in early June as investors prepare for the SpaceX IPO.  
- Concerns about the potential need to liquidate tech holdings to purchase new shares, alongside market psychology issues, are contributing factors to the drop.  
- Despite the tech slump, overall market resilience is noted, with sectors like real estate showing gains, indicating a possible rotation in investment focus.

Tech stocks dive as Friday's incoming SpaceX IPO creates 'bad psychology'