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.
Over the past month, the equal-weighted S&P 500 (^SPXEW), which isn’t as overly influenced by significant swings in large stocks — has outperformed the market cap-weighted index (^GSPC) by about 3 percentage points, also reflecting that much of the recent selling action has come in the market’s largest names.
That’s not to say the AI trade is over, but its predominance has certainly hit a speed bump.
“In [the] bigger picture, AI-driven outperformance of the US not done yet, but that is for the long term, not for the next few months,” Citi strategists led by Dirk Willer wrote in a note to clients on Monday.
Still, the firm downgraded its view on US equities to Neutral from Overweight as weak economic growth data continues to weigh down the stock market.
And in this environment, the drop we’re seeing in these Big Tech leaders doesn’t necessarily make the stocks cheap, even with their earnings firepower.
“So when you think about the setup here,” T. Rowe Price’s Wang said, “there are suggestions that perhaps these valuations are a lot more attractive, [but] I think that you have to know what kind of market you’re in.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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