The highly sought-after 'Mag 7' fell sharply by 5% this week; chip stocks suffered even more, with semiconductor indexes plummeting nearly 9%. In stark contrast, the Russell 2000 small-cap stock index has skyrocketed since last Thursday, rising 7%.
On the eve of the technology giant's earnings report week, the U.S. stock market staged a dramatic "shuffle."
"Mag 7", once highly sought after,$Apple (AAPL.US)$,$Microsoft (MSFT.US)$,$Alphabet-A (GOOGL.US)$,$Amazon (AMZN.US)$,$NVIDIA (NVDA.US)$,$Tesla (TSLA.US)$And.$Meta Platforms (META.US)$Please use your Futubull account to access the feature.
This sudden market rotation occurred because last week's unexpectedly falling inflation data reinforced investors' expectation of a Fed rate cut in September.
Glen Smith of GDS Wealth Management said: "If we see strong tech stock returns and a powerful combination of falling inflation, they could reverse the recent market weakness and trigger a new round of gains."
Next Tuesday, Tesla and Alphabet will be the first to report earnings, and investors will closely watch whether these tech giants can regain their power. The market is currently focused on Tesla's progress in self-driving car rental and Alphabet's revenue growth in the field of artificial intelligence.
Later, Microsoft, Meta, Amazon and Apple will also release their performance, while Nvidia's earnings will not be available until the end of August.
Mag 7 loses its luster, small-cap stocks rise unexpectedly, and market structure changes.
Last week, the S&P 500 equal-weight index rose by nearly 3%, but because of the high weight of large-cap tech stocks, the Mag 7 stock prices collectively fell, and the market cap version saw a decline.
At the same time, the Russell 2000 small-cap stock index has skyrocketed 7% since last Thursday. More than 1,500 Russell index component stock companies have seen stock price increases, and the widespread gains are impressive.
Market analysis pointed out that the reasons for the market style switch are mainly the following:
Inflation cooling: last week's inflation data was lower than expected, which strengthened the market's expectation of a Fed rate cut in September.
Interest rate sensitivity: Small companies generally have higher debt and are more sensitive to changes in interest rates, so they benefit significantly from expectations of a rate cut.
Profit growth comparison: Compared with the "Big Seven Technology Giants," other companies' profit growth is improving.
Investor portfolio adjustment: Analysts at Bank of America point out that short covering is one of the key factors driving the rise, with the most heavily shorted stocks performing the best.$Russell 2000 Index (.RUT.US)$"I think a lot of people have been caught off guard," says Brandon Nelson, manager of Calamos' portfolio, which focuses on small and medium-sized stocks. "Some people have been too complacent with large-cap tech stocks and have ignored or even shorted small-cap stocks because they have always thought it is the right trading pair."
Some analysts believe that although they have encountered setbacks in recent times, the potential of tech giants should not be underestimated. Take Nvidia as an example. After the last similar sharp drop, the company's stock price soared 72% in the next two months.
Will technology stocks regain their power?
Some analysts believe that although they have encountered setbacks in recent times, the potential of tech giants should not be underestimated. Take Nvidia as an example. After the last similar sharp drop, the company's stock price soared 72% in the next two months.
Jim Tierney, a growth investment portfolio manager at AllianceBernstein, believes that the basic trend that drives the growth of the "Big Seven Technology Giants" and other artificial intelligence-related stocks "is still intact," but their profit advantages relative to other parts of the market may weaken.
As for the trend, Jurrien Timmer, the Global Macro Director at Fidelity, warns that whether the S&P 500 Index can continue to rise "depends on whether new capital flows into the market and chooses to invest in stocks other than the 'Big Seven' technology giants, or just internal rotation, with investors selling the 'Big Seven' to buy other stocks." $S&P 500 Index (.SPX.US)$Earnings season is coming.
Next week, Tesla and Alphabet will be the first to report earnings. Investors will be closely watching:
- Tesla's progress in autonomous driving taxis
- Google's parent company's revenue growth in the field of artificial intelligence
Subsequently, Microsoft, Meta, Amazon, and Apple will release their performance in the following week. Nvidia's financial report will not come until late August.
Bloomberg Intelligence analyst Gina Martin Adams analyzed: "Although Mag 7's performance growth is still strong for the market's expectations, their profits are expected to slow down in the second quarter - while other component stocks in the S&P 500 Index may ultimately achieve their first year-on-year growth in at least five quarters...
This may be the first time since 2022 that the profitability focus of the S&P 500 Index is not only concentrated on technology stocks."
Editor/Somer