The Big Tech stock slump shouldn't concern investors. Here's why.

Good morning everyone! Every Wall Street expert I spoke with yesterday told me that Wednesday’s very red stock market is not a reason to sell.

The tech-heavy Nasdaq notched its worst day of the year while the S&P 500 and Dow also logged sizable losses.

But some of the smartest strategists I know insist that it isn’t time to hit the doomsday button on your portfolio just yet.

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‘It’s not a panic, it’s setting priorities’

It’s instinctual to hit the panic button when catastrophe strikes. 

Luckily for investors, the current market sell-off doesn’t resemble anything close to catastrophe. 

The Nasdaq Composite logged its worst day of the year on Wednesday with a 3.2 percent decline, with tech’s heaviest hitters all tumbling.

• Tesla down 12.1%
• Nvidia down 6.9%
• Alphabet down 4.8%
• Microsoft down 3.5%

That said, Wall Street strategists told me that the market outlook for the rest of the year remains upbeat and constructive.

And after a blistering start to the year, a pullback feels right on time. 

Importantly, weaker performance in tech will lead to less lopsided rallies and a market that isn’t so top-heavy, two critical ingredients to a sustained and healthy bull run.

While this week might hurt for stock investors, it’s a necessary step toward a more robust market overall, says Callie Cox , chief market strategist for Ritholtz Wealth Management .

“The sell off we’re seeing is probably the healthiest, most fundamental sell off you could see,” Cox told me. 

She pointed out that roughly one-third of the S&P 500 climbed Wednesday even though the index finished red, which hasn’t happened in more than two decades. In her view, tech stocks are selling off for the right reasons. Index investors, then, have little reason for concern. 

“People are cutting back on tech but leaving the rest of their portfolios alone,” Cox said. “It’s not a panic, it's setting priorities, rotating money. That needs to happen, as we’ve been in a very narrow bull market.”

The prospect of an imminent rate cut from the Fed has helped fuel wider market gains. As the July small-cap rally illustrates, investors are becoming more comfortable buying into sectors that are more sensitive to interest rates, like real estate and dividend stocks. 

Helped along by AI enthusiasm, tech stocks have accounted for an absurd share of the markets’ advance this year and last. The rotation we’ve seen over recent weeks is less of a red flag and more of a normalization.

To that point, the chief investment office at Merrill and Bank of America forecasts a strong showing for small-cap stocks in the months ahead, which are undervalued compared to large-caps. 

“What I’ve been saying to clients is, sharp rotations are why you’re diversified,” Marci McGregor , the head of portfolio strategy for the chief investment office, told me. 

A slowdown in earnings and stock gains for Magnificent Seven names, she said, should happen at the same time as those things improve for other sectors. 

DataTrek Research cofounders Nick Colas and Jessica Rabe wrote in a note Wednesday that seasonality, too, suggests more upside ahead. Over the last four decades, the S&P 500 has peaked in the fourth quarter of a year 70 percent of the time. 

The election could bring some choppy trading, but history is on the side of the bulls for now.

With volatility in mind, McGregor dubbed the current market a “buffalo market”: 

“It’s in the bull family, but it can wander. We remain overweight on US equities.”

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