After last Thursday, the "large-cap tech stock faith" experienced another serious test this Wednesday.

The US stock market encountered a super storm overnight, with the trend of the three major indices extremely polarized. The Nasdaq plunged 2.77%, the largest daily drop since December 2022; the S&P 500 fell 1.39%, while the Dow Jones rose against the trend by 0.59% to continue to hit historical highs.

The technology giants all fell with a total market capitalization evaporating by about $580 billion (about RMB 4.21 trillion) in a single day. It is worth noting that in the past five days, the market capitalization of the seven giants has cumulatively evaporated by $1.1 trillion, setting the record for the highest five-day market cap decline in nearly two years.

In comparison, the Dow has risen for six consecutive trading days, and value stocks have come to a rare shining moment, with significant gains in the past five days outpacing the Magnificent 7.

Regarding the sharp drop of tech stocks in the US stock market, Scott Rubner, Managing Director and Tactical Strategist of Goldman Sachs Global Markets Division, said, "I would not buy at this point, and the S&P 500 has nowhere to go but down." To make matters worse, Rubner warned that July 17th usually marks the inflection point of US stock returns, and the following August is usually the worst month for passive investment and mutual fund outflows.

If the big market rotation affects the pattern of the Magnificent 7 technology giants dominating the US stock market, where will be the safe haven for funds?

Tech stocks not so attractive anymore? Hedge funds start a "sell-off wave".

Recently, global capital has chosen to "vote with their feet" as tech stocks underperformed. Many major Wall Street firms have warned of the risk of selling tech stocks.

Goldman Sachs analyst Scott Rubner warns that after a series of record-high performances, the US stock market is exposed to the risk of weak fund inflows and is susceptible to negative news. He further explained that there is no expected inflow of funds from passive investors or mutual funds in August. As for trend-tracking system funds, positions have reached the maximum scale, which means that there is no more room for further purchases.

Previously, Goldman Sachs said in another report on Wednesday that global hedge funds have reduced their exposure to US stocks for five consecutive days, as large-cap tech stocks have generally fallen in recent days. The bank's data showed that the value of stocks sold by hedge funds in the past five trading days was the highest since November 2022, close to a five-year record high. In addition, the report also stated that hedge funds have sold US tech stocks for seven out of the past eight trading days.

Goldman Sachs said risk aversion actions are mainly focused on information technology industry stocks, followed by industrial, medical care, non-essential consumer goods, and communications services.

In addition, Morgan Stanley pointed out in a report earlier this week that as large-scale tech stocks experienced widespread selling, global hedge funds' exposure to the tech sector reached a new low in years. "Software stocks are the most sold-off stocks, continuing the net selling trend since the end of April, which lowers the risk exposure to a new low in years."$American Software (AMSWA.US)$Small-cap stocks dominate, value stocks quietly gain momentum, and Berkshire aims for trillion-dollar market capitalization!

It is worth noting that large technology stocks are about to usher in a new round of earnings season, which to some extent also increases the uncertainty of stock price trends. Market forecasts show that this time, Wall Street's expectations for the US stock market earnings are quite high. According to FactSet's data, the S&P 500 index's earnings in the second quarter are expected to increase by nearly 9% year-on-year, and are expected to achieve the largest quarterly increase since early 2022.

This also means that major US companies, especially tech giants, must achieve higher profit growth to avoid disappointing optimistic Wall Street analysts and lay the foundation for the stock market to reach new highs.

Although the S&P 500 index has hit a new closing high 38 times this year, the surge of the large-cap stocks is mostly built on the amazing rise of the Magnificent 7 technology giants-the problem of over-concentration in the US capital market has always been a sword of Damocles hanging over the global capital market above.

Recent weak data have rekindled the hope of a "soft landing" for the US economy. Federal Reserve officials have gradually turned dovish in their tone, and the market has begun pricing in rate cuts starting from September. This has also accelerated the market's rotation from growth stocks to small-cap and value stocks.

Under the intense sector rotation trading, the market is extremely sensitive to any movement. In the recent mournful cry of large-cap tech stocks, small-cap and value stocks have ushered in a long-lost rise. The Russell 2000 index, which focuses on small companies, has soared more than 11.5% in five days, marking the largest increase in the index since April 2020. Small-cap stocks are currently dominating.

In the face of the widespread selling of large-cap tech stocks, small-cap and value stocks have come to a rare shining moment. The industry is experiencing intense sector rotation trading, so the market is extremely sensitive to any movement.

In addition, undervalued stocks that are often overlooked by the market are quietly gathering strength, with a giant American stock innovating audaciously - Berkshire Hathaway, the stock god.

It is worth noting that the stock price of Berkshire Hathaway has risen for seven consecutive days, frequently hitting new historical highs, with a current market capitalization of over 960 billion US dollars, only a step away from a trillion market capitalization. In turbulent times, heroes emerge, and the stock god once again "makes a fortune"!

Market views suggest that the recent steady and stable rise in the price of Berkshire Hathaway stocks also partly reflects the shift in the focus of the US stock market from technology stocks to value stocks.

Value stocks are usually concentrated in mature cyclical industries, such as finance, energy, materials, and industry. These industries often have characteristics of low P/E ratio, stable cash flow, low growth rate, and high dividend yield. Conversely, growth stocks are usually tied to industries that are considered innovative or disruptive, such as technology, healthcare, and non-essential consumer goods, these sectors often have high P/E ratios.

According to Wellington Investment Management analysts, value stocks will perform well in the next three to five years, as structural inflation and rising real interest rates will help boost the performance of US value stocks. After experiencing a long rebound in growth stocks, investors should pay more attention to the balance of their portfolios.

Savita Subramanian, head of US equities and quantitative strategy at Bank of America Merrill Lynch, believes that the reasons for investors to increase investment in value stocks in cyclical industries are now more sufficient. Considering the macro environment, the leading stocks that will drive the stock market up in the next few years will be CNI Large Cap.Value Index ETF.$CNI Large Cap.Value Index (399373.SZ)$ stock.

Generally speaking, the rotation of value and growth stocks in the US stock market often lasts for several quarters or even many years; for example, growth stocks led in 1995-2000 and 2006-2020, while value stocks led in 2000-2006 and from 2021 to now.

Currently, the layout of value stock ETFs in the US stock market is also very hot. Among the popular value stock ETFs, $Vanguard Value ETF (VTV.US)$ has risen for eight consecutive days and its assets under management have reached 117.2 billion US dollars, with very active trading; after mostly trading sideways this year, it has also achieved a continuous rise in recent times. As a typical representative of value stocks, Berkshire Hathaway is also the largest component stock of several of the above mentioned ETFs. $Vanguard Value ETF (VTV.US)$has risen for eight consecutive days with assets under management reaching 117.2 billion US dollars, with very active trading;$iShares S&P 500 Value ETF (IVE.US)$And.$Ishares Russell 1000 Value Etf (IWD.US)$After mostly trading sideways this year, it has also achieved a continuous rise in recent times. Berkshire Hathaway, as a typical representative of value stocks, is also the largest component stock of several of the above mentioned ETFs.

In addition, there are a large number of index ETFs available for investors to choose from in the US stock market. Mooers can click on it.Market > ETF > US stock market > Index ETFClick here to view.

Editor/Emily