Tech Sector Rotation and SPX Support Test - February 3, 2026 Market Analysis

Kevin Green’s observation regarding SPX futures testing the 20-day SMA represents a critical inflection point for the broader market [1]. The 20-day moving average serves as a key short-term trend indicator, and a breach below this level could trigger additional algorithmic selling and momentum-based position unwinding. This technical setup occurs against the backdrop of elevated valuations across AI-exposed technology names, creating an environment where investors are increasingly sensitive to any signs of weakening momentum.

The broader market selloff on February 3, 2026, reflected concentrated weakness in technology stocks, with the S&P 500 closing at 6,914.59 (-1.01%) and the NASDAQ Composite falling to 23,214.55 (-1.91%) [0]. The Technology sector overall declined -2.38%, making it the second-worst performing sector after Consumer Cyclical (-3.23%). Only 2 of 11 sectors advanced on the day, highlighting the breadth of the decline in growth-oriented positions.

Microsoft’s stock experienced what analysts described as a “historic post-earnings collapse” that continued to weigh on market sentiment [2][3]. The stock closed at $411.53 on February 3, representing a -2.48% decline on the day, a -6.50% decline over five days, and a staggering -13.02% year-to-date decline. Over the trailing three months, Microsoft has lost approximately -20.43% of its value.

Despite beating consensus earnings estimates (EPS: $4.14 vs. $3.91 estimate, Revenue: $81.27B vs. $80.31B estimate), investor sentiment deteriorated sharply due to several fundamental concerns. The Azure cloud business reported 38% year-over-year growth, falling short of the approximately 39.4% “whisper number” that expectations had priced in [2]. More significantly, capital expenditures jumped 66% to $37.5 billion, raising substantial concerns among investors regarding the return profile on massive AI infrastructure investments.

The concentration of Microsoft’s cloud backlog with OpenAI introduces additional execution and credit risk. Approximately 45% of Microsoft’s $625 billion performance-obligation backlog is tied to OpenAI, a company still burning cash with an uncertain monetization pathway [2]. This concentration risk has become an increasingly discussed topic among institutional investors evaluating Microsoft’s AI exposure narrative.

Nvidia’s pullback on February 3 was equally pronounced, with the stock closing at $179.61 (-3.56% on the day) and extending prior weakness from a gap-down opening at $179.985 [0][4]. The stock has declined -5.84% over five days and -4.60% year-to-date, with elevated trading volume of 97.37 million shares indicating significant institutional participation in the price action.

With a P/E ratio of 44.02x and P/B ratio of 36.72x, Nvidia trades at premium valuations that leave “little room for error” according to analyst commentary [5]. The stock’s 54.43% performance over the past year has built elevated expectations, and any misses or guidance concerns in upcoming earnings could trigger substantial multiple contraction. The upcoming earnings report on February 25, 2026 (EPS estimate: $1.52, Revenue estimate: $65.55B) represents a critical catalyst for the stock and broader semiconductor sentiment [0].

The sector performance data provides strong support for Kevin Green’s “rotation out of tech” thesis [0][6]. Defensive sectors demonstrated notable strength, with Consumer Defensive rising +2.17% and Energy gaining +1.68%—a classic rotation pattern toward quality and away from growth. Basic Materials also advanced +1.34%, while the worst-performing sectors were Consumer Cyclical (-3.23%) and Technology (-2.38%).

This rotation pattern suggests risk-averse positioning among institutional investors as they digest elevated valuations in AI-exposed tech names and await clearer evidence of return on massive capital investments in AI infrastructure. The concentration of selling pressure in mega-cap technology names (Microsoft and Nvidia) indicates that the rotation is not simply a repricing of individual company fundamentals but rather a broader reassessment of the risk-reward dynamic in growth equities.

The substantial capital expenditure increases at major technology companies, exemplified by Microsoft’s 66% year-over-year surge in capEx, have created a “wait-and-see” dynamic among investors. The market appears to be demanding concrete evidence of return on investment before continuing to reward these companies with multiple expansion. This dynamic is particularly acute in companies where AI revenue remains a small percentage of total sales despite massive infrastructure buildout.

Microsoft’s substantial exposure to OpenAI through its performance-obligation backlog represents an emerging risk factor that investors are only beginning to fully price. With approximately 45% of the $625 billion backlog tied to a company that continues to burn cash, questions about the sustainability and timing of monetization have become material to Microsoft’s valuation framework.

The concentration of market declines in technology-heavy indices (NASDAQ -1.91% vs. Dow Jones -0.29%) reflects deteriorating market structure when growth stocks face headwinds. The gap-down opening in Nvidia and continued selling pressure in Microsoft suggest that technical traders may be actively reducing exposure to high-beta technology positions.

The strength in Consumer Defensive and Energy sectors, typically associated with “risk-off” positioning, provides a counterpoint to the AI-focused narrative that has dominated market performance over the past year. This defensive rotation may indicate that professional money managers are preparing portfolios for a period of elevated volatility and uncertainty.

The elevated valuation concerns across the technology sector represent the most significant risk factor for investors. Both Microsoft (P/E: 25.64x, P/B: 7.82x) and Nvidia (P/E: 44.02x, P/B: 36.72x) trade at premiums that require continued execution and growth acceleration to justify [3][5]. Microsoft’s near-flat performance over the past year (+0.11%) despite what appear to be strong fundamentals highlights the market’s reluctance to reward earnings growth absent clear AI monetization pathways.

A break below the 20-day SMA on SPX futures could trigger additional algorithmic selling and momentum-based position unwinding, potentially accelerating downside volatility. The elevated short interest in several mega-cap technology names could compound selling pressure during periods of price weakness.

The current market weakness creates potential opportunity for investors with longer time horizons and higher risk tolerance. Both Microsoft and Nvidia remain dominant market participants in their respective domains (enterprise cloud computing and AI semiconductors), and current weakness may represent an attractive entry point for conviction-based investors.

The upcoming Nvidia earnings report on February 25, 2026, and Microsoft Q3 FY2026 earnings on April 29, 2026, represent potential catalyst events where stronger-than-expected results could reverse recent sentiment deterioration [0]. Additionally, new AI model launches from major customers utilizing Nvidia’s Blackwell infrastructure could provide positive sentiment catalysts.

The SPX futures testing the 20-day SMA represents an immediate technical inflection point that could resolve within the coming trading sessions. The Nvidia earnings catalyst is approximately three weeks away, providing a defined timeline for potential sentiment improvement. The government shutdown concerns mentioned by Kevin Green introduce additional uncertainty that could affect market volatility in the near term [1].

The February 3, 2026, market action reflects a significant reassessment of risk in AI-exposed technology stocks, particularly mega-cap names like Microsoft and Nvidia. Despite strong fundamental results from Microsoft, investor concerns regarding Azure growth acceleration, capital expenditure returns, and OpenAI dependency have created persistent selling pressure. Nvidia’s elevated valuation leaves limited room for error ahead of its February 25 earnings report.

The rotation toward defensive sectors suggests institutional investors are adopting a more risk-averse posture pending clearer evidence of AI investment returns. The critical technical support level at the 20-day SMA represents an immediate inflection point that could either stabilize market sentiment or trigger additional downside volatility.

Key data points for ongoing monitoring include: the SPX response to 20-day SMA support testing, sector breadth and defensive sector leadership persistence, Microsoft and Nvidia price action ahead of earnings, Azure and AI revenue contribution to total sales, and Federal Reserve signals regarding interest rate trajectory that affects growth stock valuations.