Tech Stocks Stall Amid Tariff Turbulence and Fed Crossroads

The tech sector’s late-afternoon sell-off on May 7, 2025, marked a pivotal shift in investor sentiment, as fears over trade policies and monetary uncertainty overshadowed the sector’s recent AI-driven optimism. By the closing bell, the S&P 500 had notched its second consecutive loss, ending its longest winning streak in over two decades. The decline underscored a growing reckoning: even the most celebrated tech giants are not immune to the ripple effects of protectionist trade measures and macroeconomic fragility.

At the heart of the selloff were the lingering consequences of President Trump’s tariffs, which have increasingly strained corporate balance sheets. Ford Motor, Clorox, and Palantir Technologies—all of which withdrew full-year financial guidance in recent weeks—highlighted the sector’s vulnerability. Ford projected tariffs would cost it $1.5 billion in adjusted operating earnings, while Clorox cited “macroeconomic uncertainty” after reporting weaker-than-expected results. These warnings, though not exclusive to tech firms, amplified doubts about the sector’s ability to sustain high valuations amid rising operational costs.

The AI sector, once a symbol of tech’s future, bore the brunt of the sell-off. Palantir Technologies, despite meeting earnings estimates, saw its shares plummet 14% as investors questioned the sustainability of its growth in a cost-constrained environment. Meanwhile, megacaps like Nvidia and Alphabet faced pressure as well: Nvidia’s shares fell 0.7% in late trading, reflecting skepticism toward their AI-driven revenue streams. The message was clear: even cutting-edge innovation cannot insulate companies from broader economic headwinds.

Compounding these pressures was the Federal Reserve’s upcoming policy meeting. Though widely expected to hold rates steady, the Fed’s dilemma—whether to address tariff-induced inflation or accommodate cooling growth—heightened market anxiety. The 10-year Treasury yield, a key gauge of investor sentiment, remained stubbornly elevated at 4.34%, signaling that borrowing costs would stay high despite softening economic data.

Global markets further amplified the uncertainty. While Asian indices like Shanghai and Hong Kong rose on hopes of trade deal progress, European markets such as Frankfurt declined amid political instability. For U.S. tech firms with global supply chains, this divergence highlighted the fragility of cross-border growth strategies.

The sell-off’s implications are profound. Tech stocks now face a triple threat: trade-related profit compression, valuation reevaluation, and uncertainty over monetary policy. The sector’s median price-to-earnings ratio, once buoyed by AI hype, now risks becoming a liability if earnings fail to keep pace.

Conclusion: The May 7 slide was more than a temporary correction—it was a warning. With companies like Ford quantifying tariff impacts at $1.5 billion and Palantir’s shares collapsing despite solid results, investors are recalibrating expectations for an industry once shielded by its growth narrative. The S&P 500’s two-day losing streak and the tech sector’s underperformance relative to broader markets underscore a structural shift. Until trade policies stabilize and the Fed clarifies its stance, tech stocks may remain vulnerable to episodic volatility. For now, the era of unchecked optimism has given way to a reality where even the most innovative firms must prove they can thrive in a less forgiving economic landscape.