Investors dump tech shares as shutdown relief evaporates

U.S. stocks posted their worst day in a month, unwinding a rally that began with news of a deal to end the federal government’s longest closure. Declines were broad, with tech stocks sliding alongside the Dow Jones Industrial Average, which lost almost 800 points. Shares of smaller companies dropped, with the Russell 2000 index losing 2.8%. Bitcoin extended a recent fall, slipping back below $100,000 to its lowest 4 p.m. level since May.

For more than a month, investors have lived without key government reports that normally shape their basic understanding of the economy. That is set to change after President Trump signed spending legislation late Wednesday. But investors are now worried the incoming torrent of data could swing markets and upend bets on a December interest-rate cut that they had once taken for granted.

“What equities are possibly reflecting today is we’re going to see a deluge of data," said Mina Krishnan, multiasset portfolio manager at Schroders. “We’ve been in the dark for the past 40 days, and it’ll be a lot of data all at once."

The S&P 500 fell 1.7% Thursday. The Dow also dropped 1.7%, or about 798 points, while the tech-heavy Nasdaq composite sank 2.3%, marking the largest declines for all three major indexes since Oct. 10. Both the S&P 500 and the Dow remained slightly up for the week and near record highs.

One factor weighing on shares Thursday: Interest-rate futures showed Thursday that traders were already backing away from their rate-cut wagers. The chances of a cut next month were down to around 50%, according to CME Group, from 63% Wednesday and about 70% a week earlier.

That shift added to pressure on markets, which have been turned upside down this month by investors’ rush out of this year’s hottest stocks into less favored sectors.

Thursday was again particularly rough for technology stocks, covering every part of the sector. The cloud-computing company CoreWeave dropped 8.3%, extending its weekly decline to 25% after it flagged a delay by a data-center developer on Monday. Nvidia fell 3.6%, while Oracle lost 4.1% and Tesla slid 6.6%.

Prior to Thursday, losses in tech had been balanced by gains elsewhere, particularly in the healthcare sector—lifting the Dow to a new record and its first close above 48000 on Wednesday. Still, the blue-chip index couldn’t sustain that momentum Thursday, dragged down partly by Walt Disney shares, which slid 7.7% after the company reported lower-than-expected revenue.

Many investors say they are still bullish on the tech sector, especially companies at the forefront of the boom in artificial-intelligence investment. But they have concerns about how high the stocks of some of those businesses have climbed, causing some to book profits and look elsewhere for opportunities.

“You’re seeing people sticking to stocks, but they’re rotating out of these growthy, more expensive equities into what might be perceived as more safe and cheaper [stocks]," said Mark Malek, chief investment officer at Siebert Financial.

Some investors, meanwhile, say that it also made sense to pare back interest-rate-cut bets.

Wall Street became overly confident about lower rates when the Fed released projections in September that showed a median forecast of two more cuts this year, said Jeff Young, head of investment strategy for PGIM Quantitative Solutions.

That forecast, he said, obscured a split at the central bank between officials who favored cuts because they were worried about weakness in the labor market and others who were more reluctant to lower rates while inflation remains above the Fed’s 2% target.

Despite the uncertainty now, Young said that the Fed’s decision will be made easier by coming data releases. The Labor Department said Thursday that it will announce revised data release dates “as they become available."

Analysts expect the September report to come soon, since it is pegged to data that was collected before the closure began on Oct. 1. But White House officials have cast doubt on whether a complete—or any—October report is likely.

Not all stocks fell Thursday. Cisco’s stock climbed 4.6% after the cyber-networking company raised its outlook. Verizon shares added 0.8% after The Wall Street Journal reported the telecom company is planning to cut about 15,000 jobs. Energy was the lone S&P 500 sector to finish in the black, ticking up 0.3%.

In other markets, the yield on the benchmark 10-year U.S. Treasury note climbed to 4.111%, according to Tradeweb, from 4.066% Wednesday, reflecting the shift in rate expectations. Silver futures slipped 0.5% after reaching a record high on Wednesday.

Write to Sam Goldfarb at sam.goldfarb@wsj.com