This year’s stock market sell-off has been dramatic, but it also contains almost all of the same characters that have featured in the biggest market disruptions we’ve seen over the last two years.
Both on the way up and now, the way down.
During Monday’s market rout, shares of Nvidia (NVDA), Tesla (TSLA), Alphabet (GOOG, GOOGL), Amazon (AMZN), Meta (META), Apple (AAPL), and Microsoft (MSFT) all fell, with Tesla falling a whopping 15% to lead losses.
It marked the latest sign that the so-called “Magnificent Seven” tech stocks that drove the S&P 500 to back-to-back 20% gains over the past two years have now become the “lag seven,” according to T. Rowe Price science and technology portfolio manager Tony Wang.
Whether stocks are going up or down these days, it seems, it’s all one big AI trade.
And right now, it doesn’t appear like a market in which investors are looking to bet big on future AI growth, particularly with the overall earnings story for the S&P 500 (^GSPC) coming into question.
“The S&P 500’s forward earnings estimates, a key pillar of this bull market, have flatlined over the past month,” Truist co-chief investment officer Keith Lerner wrote in a note to clients on March 4, explaining why he’d downgraded equities to a neutral portfolio weighting.
Through this bull market run, Big Tech has served as a key earnings driver, helping support overall profit growth for the S&P 500 while non-technology companies have struggled. At times, that’s helped the sector play as a flight to safety to trade amid market uncertainty.
But now, as Wang notes, not only are these companies’ spending plans facing some investor skepticism, but also “[earnings] results are becoming more in line.”
“And if we look forward, they’re likely going to be not accelerating,” Wang added.
The macro backdrop, with concerns about Trump’s tariff policy pushing both interest rates and the dollar around, is also a challenge for these stocks.
“The lagged impact of higher rates and a stronger dollar, as well as the debate around AI capex have come together to pressure earnings revisions,” Morgan Stanley chief investment officer Mike Wilson wrote in a note to clients on Sunday.
“As a result, we’ve seen very choppy index performance with the S&P 500.”
The sectors that host all the Magnificent Seven tech stocks — Information Technology (XLK), Consumer Discretionary (XLY), and Communication Services (XLC) — were the worst-performing sectors on Monday.
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