The seven technology behemoths that powered a 54% surge in US stocks over two years have tumbled into a collective correction, highlighting a fraught moment for American equities amid worries the economy is slowing and inflation will pick up.
The Bloomberg Magnificent 7 Index slid as much as 3.4% Tuesday, taking its drop since a Dec. 17 record past 10%. The group has shed a combined $1.6 trillion in market value in that span. Tesla Inc. has paced the drop in the equal-weighted gauge, plunging 37%. Amazon.com Inc., Microsoft Corp. and Alphabet Inc. have lost at least 10%. Apple Inc. and Nvidia Corp. are down about 2%, while Meta Platforms Inc. is the only gainer, at 5%. Nvidia is slated to report earnings after markets close Wednesday.
US stocks have wobbled in the four days since closing at a record last week, with investors growing increasingly concerned that President Donald Trump’s tariff threats will weaken the economy and stoke inflation. Trump reiterated Monday that 25% levies on two of America’s biggest trading partners will go into effect next week, a move that economists say will bring higher retail prices on a host of goods. Meanwhile, recent economic data has missed estimates, while US consumer confidence dropped by the most since 2021 last month, data showed Tuesday.
“There’s concerns about growth, there’s still concerns about inflation,” said Alec Young, chief investment strategist at Mapsignals. “You don’t normally have concerns about both at the same time, but that’s a factor. And then the tariffs kind of fan both.”
While the recent selloff doesn’t mean further pain is imminent, the souring of the mood on America’s equity market marks a stark turnaround from Trump’s election in November. His proposals on deregulation and fiscal spending stoked a post-election rally that has since given way to concerns that tariffs and the threat of mass deportations could exacerbate goods and wage inflation.
Signs of stress on American equity markets have heightened in the past four sessions. The Cboe Volatility Index spiked above 20 and the tech-heavy Nasdaq 100 Index is down 5% over that span. The Bloomberg Magnificent 7 Index is on pace for its worst month since late 2022 relative to the S&P 500. Weakness in the S&P’s biggest sector sent the gauge below its average price for the past 100 days for the first time since August.
The pain is worse in speculative areas of the market. An ETF that tracks the momentum factor is down 7% in five days, Palantir Technologies Inc.’s rout has topped 30% and Bitcoin-related stocks are plunging alongside the token’s price. Retail flows are fading, trend followers are estimated to be sellers in every scenario and option flows are unfavorable.
To be sure, the equal-weight nature of Bloomberg’s Magnificent 7 Index means Tesla’s slide will hurt the overall performance, but the carmaker’s torrid run in November likewise bloated the gauge’s advance back then. Tesla’s valuation is now below $1 trillion. Its shares have been bogged down by a string of bad sales reports and heightened competition from Chinese rivals like BYD Co.
Nvidia’s results will land Wednesday with big-tech investors increasingly on edge over lofty valuations and uncertainty about massive spending on artificial intelligence. Over the past two years, Nvidia has led the AI trade and fellow US megacaps have benefited from the trend. Recent headlines about upcoming tariffs, cheaper AI models out of China and high valuations have fueled investor concerns.
“People are taking profits ahead of Nvidia’s results,” said Michael Matousek, head trader at US Global Investors. “People are ringing the register, taking some off ahead of the results.”
Only Meta Platforms has weathered the recent tumult, helped by speculation its open-source version of AI will more readily lead to profit growth. Meanwhile Apple and Tesla both face concerns about a trade war with China.
If Nvidia’s results disappoint, Matousek said, the AI trade that’s delivered riches to Mag 7 investors may have trouble reclaiming a record.
“We need to see more of an ROI on all this spending for the train to keep moving,” he said. “You need to keep shoveling coal into the furnace, but if that stops workings, people will lose interest. That doesn’t mean the AI trade will crater, but things will chop around and slow until we see more of an uplift.”
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