After losing 2.38% by Thursday’s market close, the Nasdaq has officially entered a correction.
From a year-to-date high in Jan. 28, the tech-heavy index is now down 10.27%. We are down 10.65% from our all-time high in Oct. 29 as continued losses in Magnificent Seven stocks and global turmoil have increased markets around the world.
An extended pullback that began in the last quarter of 2025 — fueled by concerns about AI’s potential impact on Software-as-a-Service (SaaS) companies — has extended into the first half of 2026. More recently, losses have been compounded by the Iran war, which has disrupted energy infrastructure and global trade routes while sending oil prices above $100 per barrel.
Worse, the cap-weighted index suffered as investors continued to rotate out of high-risk sectors such as technology and telecommunications services and into more cyclical and defensive sectors, such as energy and the consumer base. That cycle has accelerated amid deteriorating macroeconomic conditions, including declining consumer confidence, a hot labor market and sticky inflation.
Market corrections – losses of between 10% and 20% from recent highs – are common, occurring on average once a year. But they can last for months. Since 1987, corrections have lasted between 74 and 155 days, meaning they can have a significant impact on the portfolios of long-term uncorrected investors.
Why are tech stocks falling in 2026?
After posting market-leading gains of 40% and 34% in 2024 and 2025, the tech sector will stagnate in 2026. The group has lost 8% year to date, making it the fifth-worst performer among the S&P 500’s 11 sectors.
But those losses have come mostly from the Nasdaq. While the Magnificent Seven’s total weighting is 30% to 35% of the S&P 500, it makes up 40% to 45% of the Nasdaq.
While their collective performance hasn’t encouraged investors, some of their underperformance — including Tesla’s 15% YTD loss and Microsoft’s 23% — has been comparable to other SaaS stocks.
Shares of The Trade Desk, for example, are down 43% this year as the market has turned to companies that deliver cloud-based software applications, despite their high-margin subscription models that generate recurring revenue that lead to relatively healthy earnings. Others, like project management software developer Atlassian, have seen year-to-date losses of more than 55%.
What investors should do now
On Thursday, President Donald Trump extended the strike on Iran’s energy infrastructure until April 6, citing ongoing negotiations. But with no visible signs of an impending ceasefire, further escalation and escalation are likely.
The CBOE Volatility Index — a frequently cited measure of expected stock market volatility — has risen more than 94% this year, including a 14% increase last week.
For long-term investors, sustained losses provide an opportunity to buy shares of the market’s leading stocks at significant discounts. While that applies to index fund investors as well, those using dollar cost averaging can largely ignore the Nasdaq correction, since that strategy involves buying stocks repeatedly regardless of price.
Short-term investors – especially those nearing retirement – may consider taking a safe flight and reducing their exposure to high-risk, high-volatility stocks in favor of low-risk, low-volatility assets.
That could include a combination of relatively risk-free Treasury bonds, certificates of deposit, and equity-weighted or income-generating exchange-traded funds.
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