Why the Current Selloff in Big Tech Stocks Is a Springboard for a New Rally

The stock market always lives on expectations and fears. If you look at the current picture, it might seem that anxiety has settled on Wall Street. The largest tech giants — Alphabet (GOOGL), Microsoft (MSFT), Meta Platforms (META), Amazon (AMZN), Nvidia (NVDA), and Tesla (TSLA) — have all gone through a very noticeable correction, down roughly 10% to 15% from recent highs. Parallel to this, precious metals — gold, silver, and platinum — have been squeezed at their support levels. The crowd of investors, frightened by macroeconomic reports, are beginning to have doubts. Is the party over? Are we on the verge of a recession?

But if we cast aside emotions and look at the dry facts, technical indicators, and real business processes, a completely different picture emerges. The market is not dying. Instead, it is forming an ideal entry point at a local bottom. Here's why I believe that to be the case.

A Fundamental Disconnect: Stock Quotes Have Fallen, Not Businesses

When we talk about the 10% to 15% drop in these market mastodons, it is important to understand the difference between stock market noise and the real economy of a company.

Relieving the “overheating” in the market was necessary. Stocks cannot grow at a near-vertical trajectory forever, and a 10% to 15% decline is a classic process that shakes "weak hands" and speculators out of the market. Technical indicators (such as the Relative Strength Index, or RSI) have now stabilized. The “overbought” condition — which was shouted about from the rooftops just a couple of months ago — has been neutralized, and assets have returned to more adequate, attractive buying zones.

But the most important thing is that, while the quotes were falling, absolutely nothing bad happened to the businesses of these companies. Big Tech did not suddenly stop generating colossal profits. In fact, their revenues are growing, and their ecosystems are still expanding. Stock prices may have suffered from macroeconomic fears, but the profit generators themselves have remained unharmed. Now, the shares of these businesses are being offered at an excellent discount.

An interesting paradox arises here. Despite the drop in these tech giants, the S&P 500 Index ($SPX) did not collapse to 6,800 points, as mathematics would dictate with a proportional fall. Instead, the index remained at the 7,300 to 7,400 level, dipping only slightly. This means that the market is covertly rotating capital, and the index has become much healthier. Accordingly, as soon as Big Tech stocks start to recover, this accumulated potential could trigger like a spring capable of sending the index to new all-time highs.

Big Tech Is a Macroeconomic Locomotive

To understand why the U.S. economy is not facing a collapse in the near future, we need to look at where the tech giants are spending their money. Today, companies developing artificial intelligence (AI) are taking completely different paths, but they are united by one thing: unprecedented capital expenditures.

Microsoft, Google, Meta, and Amazon are building gigantic data centers for AI. If earlier they simply reinvested a part of their profits, now they are actually getting into loans. They spend more than they earn here, now for the sake of capturing the infrastructure of the future. For market speculators, such spending is a reason for nervousness, with margins falling. But for the real U.S. economy, this is pure financial doping.

How does this economic tugboat work? When Big Tech allocates billions of dollars for a new data center, this money does not burn up in a virtual cloud. Instead, it turns into orders for construction companies. Builders buy steel, concrete, cables, and transformers. Workers receive salaries and go spend their money in stores, pay mortgages, and buy cars. Parallel to this, the manufacturers of servers and networking equipment expand their workforces. The list goes on.

This multiplier effect is rippling through the economy in waves. Tech giants are now acting as a main donor to the U.S. economy. In my view, they are subsidizing it, pouring colossal funds into the real sector.

As long as this "construction of the century" continues, the economy will be provided with jobs and orders. Importantly, there are also currently no capex budgets being cut in 2026 and 2027. With such a strong foundation, the economy simply has no internal reasons for weakness. The business model works. The doping is entering the system. Jobs are being created. The only thing that can frighten this market is external factors — namely, Federal Reserve policy and inflation. But even with that, if you dig deeper than the headlines, a big positive awaits.

The Inflation Phantom and the Hidden Reality of Prices

When it comes to inflation, the main mistake to avoid is evaluating it by the "overall" indicator (Headline CPI) without delving into the details. In May, inflation did show an unpleasant spike, reaching a level of 4.2% in annualized terms. The market immediately panicked in response, worrying that the Fed will never cut rates.

But if we break this figure down into its components, it turns out that this growth was caused by a temporary factor the Fed has no control over: gasoline and energy prices amid geopolitical tensions. Meanwhile, core inflation (Core CPI) — which is stripped of volatile fuel and food prices — was only 0.2% in May.

What does this mean in practice? First, the effects of tariffs are exhausted and no longer pushing up prices, with past tariff shocks and trade restrictions having been digested by the economy. Second, the tight policy worked. The high Fed interest rate, which was kept at its peaks for a long time, appears to have done its job, cooling credit markets and stabilizing domestic core consumption. Core inflation is calming down.

Now, the most interesting part is what is happening today. Gasoline prices in the U.S. — which soared in the spring amid the Iran war — have begun to fall rapidly this month. Fuel is getting cheaper. There is an active pullback at the pump, and the May and April highs are being completely offset. 

Gasoline is a powerful driver of the overall inflation index. When the statistics take this June drop in fuel prices into account, the overall inflation indicator may go down sharply.

For Wall Street, this will be a moment of truth. The market will suddenly realize that inflation is weaker, and that the threat of overheating has passed.

The Fed and an Inevitable Change in Rhetoric

As soon as macroeconomic statistics confirm weaker inflation, the attention should shift to the Federal Reserve. Here, investors are in for another discovery. 

Let's recall some context. The Federal Reserve is currently headed by Kevin Warsh, who became Fed Chair in late May. Warsh is politically aligned with President Donald Trump, who has been a supporter of cheap money, low rates, and booming stock market growth.

Upon taking office, however, Warsh simply could not immediately begin easing policy. If he had announced rate cuts right from the jump, the market could have regarded it as political capitulation. That would have potentially provoked a dollar collapse, a flight of institutional capital from U.S. bonds, and accusations of the Fed losing independence.

But now with core inflation being reined in and the overall indicator following gasoline, Warsh's hands are untied. A fundamental, purely economic justification for maneuvering is appearing. Inflation is weakening, the economy is stable, and there is likely no longer any sense in keeping rates at suffocatingly high levels.

Of course, I'm not saying that the Fed will drop the rate to zero tomorrow. But the central bank's rhetoric should begin to soften. Harsh warnings will be replaced by hints at a readiness to support economic growth. And for the stock market, the Fed's rhetoric is much more important than the technical steps themselves. Market algorithms and large funds price in expectations in advance. A soft tone from the Federal Reserve is a green light to buy risk.

A Time to Buy at the Bottom

If we connect both parts of our analysis here, it's easy to see the setup for a bullish reversal. We have a technical buying zone, where Big Tech has corrected, overbought indicators have reset, and quotes have become attractive. We also have a business monolith, with tech giants' profits growing and their investments serving as fuel for U.S. GDP, eliminating a hard landing scenario for the economy. We also appear to have an inflation surprise on the way, as the drop in gas prices should send overall inflation into a dive, opening the market's eyes to core inflation coming under control. Finally, there's the potential Fed pivot, with the central bank's hawkish tone set to soften and stimulate the markets.

Meanwhile, precious metals are bouncing off their key support levels, confirming that the overall oversold condition in the markets has been eliminated.

Panic on the market always creates the best opportunities for capital. Now, with all of these factors at play, it may be time to open positions in key assets before the S&P 500 flies off to rewrite all-time highs. In my view, a Big Tech growth wave appears to be on the approach.