Why the Nasdaq-100 Fell Nearly 2% on Tuesday

The market took a downturn on Tuesday, May 12. Not an overwhelming one, mind you, but a notable departure from recent trends. And one index took a much harder hit than the others.

All the leading market indexes dipped right away. As of this writing at 12:25 p.m. ET, the S&P 500 (SNPINDEX: ^GSPC) was down by 0.4% and the Dow Jones Industrial Average (DJINDICES: ^DJI) had dropped 0.9% lower. On a day like that, it's no surprise that the volatile Nasdaq-100 index led the way with a 1.9% plunge.

^NDX data by YCharts

Blame the chip stocks (and a few other giants)

I'm not describing a massive retreat here. About half of the 30 Dow Jones components were down, and the other half were up, all by low single-digit percentages. As usual, the high-priced stocks of Goldman Sachs (NYSE: GS) and Caterpillar (NYSE: CAT) did most of the needle-moving work, and both trended down by a couple of percent.

It was a different story on the cap-weighted S&P 500 and Nasdaq-100 indexes. Accounting for each stock's weight, the ten largest index-movers on the S&P 500 all headed downward today. Broadcom (NASDAQ: AVGO) and Micron Technology (NASDAQ: MU) took the charge, with each chip stock reducing the index score by roughly 0.1%. That's what a 4.2% Broadcom retreat and a 9.9% Micron plunge can do for the most popular index.

The same moves dropped the Nasdaq-100's score by 0.2% each, as the top stocks carry more heft in a smaller and more focused index. Amazon (NASDAQ: AMZN), Tesla (NASDAQ: TSLA), and Intel (NASDAQ: INTC) also weighed this index down by at least 0.1% each.

None of these stocks reported earnings this morning or last night. Some of them actually had good news today. Broadcom, for example, got a bullish review and raised price target from Citi analysts, which tends to be the kind of thing that drives stock prices higher.

Image source: Getty Images.

However, macroeconomic concerns added a heavy gloom to Tuesday's trading. The April inflation report was slightly harsher than expected, showing the highest annual inflation rate since the spring of 2023. Oil shipments through the Strait of Hormuz are still completely blocked. Peace talks around the Iran conflict aren't looking good, as President Trump scoffed at Iran's latest proposal.

So oil prices are up, and the high inflation rate is holding back many stocks. At the same time, the Q1 earnings season carries on with a handful of positive surprises but also a lot of red-ink earnings moves today. These long-tail effects don't make much of a difference to the leading stock market index scores, but the big names with real power are tapping into the same economic trends.

Don't panic; it's just Tuesday

As always, one bad market day won't make or break your portfolio. The Nasdaq-100 is making a rather large move today, but a 1.9% change still isn't the end of the world.

So hold your horses, dear investor. You may want to check up on your top holdings after a day like this, just to make sure your investment theses haven't changed. As a whole, Wall Street is holding its breath for an end to the Persian Gulf conflict, and it'll probably take months to sort out the global oil supply after that.

In the grand scheme of things, this bearish Tuesday may stick out as a momentum change, or it might eventually disappear among the usual market noise. Remember, price drops can be an excellent time to pick up great stocks at a discount, but today's moves didn't necessarily look like a game-changing opportunity.

Stay tuned for further updates.

Anders Bylund has positions in Amazon, Intel, and Micron Technology. The Motley Fool has positions in and recommends Amazon, Broadcom, Caterpillar, Goldman Sachs Group, Intel, Micron Technology, and Tesla. The Motley Fool has a disclosure policy.