Tech stocks had a rough Tuesday, and that's putting it mildly. The Nasdaq 100 shed more than 1% by midday in New York, pushing its month-to-date losses past 5%. Meanwhile, investors are clearly in risk-off mode when it comes to this year's high-flyers, and the timing couldn't be more critical.

This week could determine whether the market has enough momentum left for a year-end rally, or if we're watching the air slowly leak out of the AI bubble. The big event everyone's watching? Nvidia Corp. (NVDA) reports earnings Wednesday after the bell. As the world's largest company and the poster child for the AI boom, Nvidia's results might just set the tone for everything that comes next.

Adding another layer of uncertainty, federal agencies are expected to release delayed economic indicators later this week that could reshape expectations around Federal Reserve policy. And speaking of the Fed, rate-cut bets have become a coin flip. The CME FedWatch Tool shows nearly even odds between a 25-basis-point cut and no move at all for December's meeting, following some decidedly hawkish commentary from Fed officials recently.

For the second straight session, all major indexes traded in the red. The S&P 500 is tracking toward its fifth losing day out of six, while the VIX jumped above 25, climbing 11% on Tuesday after Monday's 13% spike. When the fear gauge starts moving like that, you know investors are getting nervous.

Chips and AI Taking the Biggest Hit

The pain is heavily concentrated in AI and semiconductor stocks, where worries about stretched valuations continue weighing on sentiment. The iShares Semiconductor ETF (SOXX) dropped over 2% Tuesday, heading for its fourth consecutive daily decline. Chipmakers are now down 10% for the month, putting them on track for their worst performance since June 2022. That's a brutal stretch for a sector that seemed unstoppable just weeks ago.

But here's where it gets interesting: not every sector is bleeding. Healthcare stocks are actually surging as investors hunt for safety and more predictable earnings visibility. This isn't a broad market meltdown; it's a rotation, and it's happening fast.

The Health Care Select Sector SPDR Fund (XLV) is now outperforming its tech counterpart, the Technology Select Sector SPDR Fund (XLK), by 14 percentage points this month. That's the widest performance gap between these two sectors since February 2002. Let that sink in for a moment.

Leading the charge in healthcare are Eli Lilly and Company (LLY), Amgen Inc. (AMGN), and Merck & Co., Inc. (MRK), which rank as the top performers among the 100 largest U.S. stocks this month. They're up 20%, 14%, and 12%, respectively. While tech investors are licking their wounds, healthcare shareholders are celebrating.

Crypto Volatility Continues

Elsewhere in the volatility department, crypto markets are living up to their reputation. Bitcoin (CRYPTO: BTC) plunged to as low as $89,183 Monday night before bouncing back to around $93,000 as of this writing. Wild swings like that remind everyone that digital assets remain a rollercoaster ride.

Tuesday's Performance In Major US Indices, ETFs

Looking at the major ETFs, the picture was mostly red. The Vanguard S&P 500 ETF (NYSE: VOO) fell 0.6% to $608.51, while the SPDR Dow Jones Industrial Average (NYSE: DIA) dropped 0.9% to $462.11. The tech-heavy Invesco QQQ Trust Series (NASDAQ: QQQ) declined 0.9% to $598.34. The one bright spot? The iShares Russell 2000 ETF (NYSE: IWM) rose 0.2% to $233.56, showing small caps held their ground.

S&P 500's Top 5 Gainers On Tuesday

S&P 500's Top 5 Losers On Tuesday

The losers list tells the story of Tuesday's market in microcosm. Western Digital and Micron getting hammered? That's the chip selloff. Amazon down nearly 4%? That's big tech feeling the pain. The gainers list, dominated by healthcare names like Medtronic and Merck, shows exactly where the smart money is rotating.

So what happens next? A lot depends on what Nvidia says Wednesday evening. If the chip giant delivers blowout numbers and strong forward guidance, maybe tech finds its footing. If the results disappoint or guidance comes in cautious, this rotation could accelerate. Either way, we're watching a fascinating moment where the market decides whether last year's winners still deserve their crown.