(Feb 4): Stocks in Asia are set to follow Wall Street lower, after a tech selloff dragged down benchmarks and saw a rotation into more economically sensitive industries.

Equity futures signaled declines in Sydney, Tokyo and Hong Kong. A drawdown in software makers weighed on US trading, sending the S&P 500 to a 0.8% loss and the Nasdaq 100 down 1.6%. Oil climbed as the US Navy shot down an Iranian drone headed toward an aircraft carrier in the Arabian Sea. Bitcoin hit the lowest since November 2024, while gold and silver rose after a historic rout lured dip-buyers.

Despite losses in major benchmarks, most shares in the S&P 500 actually rose. FedEx Corp. — an economic barometer — extended a record-breaking rally. Walmart Inc. topped US$1 trillion.

“Rotation is occurring,” said Steve Sosnick at Interactive Brokers. “The tricky question is whether it is a benign reallocation of exposure or a sign of some underlying instability.”

Bets on AI companies have dominated the US equity market for three years, but a growing number of investors are now wagering that the run, led by the “Magnificent Seven” megacaps, is giving way to broader market participation. In fact, a marked rotation has taken place in 2026, with value shares far outpacing growth.

“Our sense is that markets are churning underneath the surface as worries over AI capital spending battle with ‘hopes and dreams’ of broadening out as a result of an accelerating US economy,” said Chris Senyek at Wolfe Research.

The dollar dropped after notching its biggest back-to-back advance since April. Treasuries barely budged, with investors parsing the latest remarks from central bank speakers.

Federal Reserve Bank of Richmond President Tom Barkin said policy easing has bolstered the jobs market as officials now look to bring inflation back to the target. Fed Governor Stephen Miran said the absence of strong price pressures means rates need to be lowered again this year.

While the trend in equities remains positive, it has become somewhat more guarded with the weakness in tech, according to Louis Navellier at Navellier & Associates.

The first wave of selling was in stocks associated with legal software and data services as shares of Experian Plc, London Stock Exchange Group Plc and Thomson Reuters Corp. tumbled. Then it snowballed to include most of the software sector, pushing the iShares Expanded Tech-Software Sector ETF down about 4.5%.

Bloomberg LP, the parent of Bloomberg News, competes with LSEG and Thomson Reuters in providing financial data and news.

“Bifurcated action is characterizing today’s Wall Street trading, as tech surrenders the floor to cyclicals even as Palantir delivered a blockbuster beat-and-raise last night, which initially boosted optimism regarding AI prospects,” said Jose Torres at Interactive Brokers.

Small caps, meanwhile, are outperforming as they are relatively sensitive to economic health, he added.

“Despite elevated volatility across the macro landscape, the underlying structure of this market is clear: We are in a ‘rotational’ bull market,” said Craig Johnson at Piper Sandler. “Capital is rotating into cyclicals and value stocks.”

In commodities, oil pared some gains in late Tuesday trading as President Donald Trump reiterated that the US and Iran are maintaining diplomatic talks. Spot gold climbed 6% in the session, recovering somewhat from its worst rout in more than a decade, while silver rose more than 7% as a risk-on tone returned to wider markets.

Bitcoin extended its almost four-month slide. The cryptocurrency’s slump through some important thresholds could have cascading effects leading to massive value destruction, famed investor Michael Burry said.

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