The group of highflying megacap stocks has officially entered correction territory
Members of the “Magnificent Seven,” including Google owner Alphabet Inc., have lost a collective $1.7 trillion in market value since July 10, Dow Jones Market Data show.
The wheels appeared to be coming off the artificial-intelligence trade on Wednesday, as members of the “Magnificent Seven” group of megacap tech stocks booked their worst daily drop since the launch of ChatGPT.
OpenAI’s November 2022 rollout of its AI chatbot ushered in an era of investor optimism around the technology’s potential to drive innovative new products and offerings — and, in turn, fuel lucrative corporate earnings for the biggest and best-positioned tech companies.
Yet Wednesday’s stock-market selloff saw the Magnificent Seven finish down 4.6% — their one-day worst drop since September of that year, according to a market-cap-weighted gauge maintained by Dow Jones Market Data.
Since their most recent peak on July 10, the seven stocks have fallen more than 10% through Wednesday’s close, leaving them firmly in correction territory for the first time since this past October.
The Roundhill Magnificent Seven ETF saw an even bigger decline of 6.1% on Wednesday, ending down more than 11% from its July 10 close.
Over this two-week time frame, the Magnificent Seven stocks have collectively erased more than $1.7 trillion from their market capitalization. More than $768 billion was wiped away on Wednesday alone — the biggest one-day drop on record for the group, dating back to when Facebook parent Meta Platforms Inc. went public in 2012.
Megacap tech stocks have hit the skids in July since a softer-than-expected inflation report rekindled expectations for multiple Federal Reserve interest-rate cuts between now and the end of 2024, with the first expected to arrive in September.
With the start of the Fed rate-cutting cycle appearing imminent, small-cap and value-oriented names have charged ahead after lagging behind the S&P 500 and Nasdaq Composite for most of 2024.
Information-technology stocks finished down more than 4% on Wednesday, also the sector’s worst day since September 2022. The consumer-discretionary sector — which includes two members of the Magnificent Seven, Tesla Inc. and Amazon.com Inc. — had its worst day since September 2022, as well.
The selloff was inspired by the latest batch of earnings from Tesla and Google parent Alphabet Inc., the first two members of the Magnificent Seven to report results since the start of the summer earnings season. Visa Inc. shares also slumped after thecredit-card giant’s earningsoffered more signs of a weakening consumer.
But it was the results from the Magnificent Seven names that appeared to garner most of the attention from investors, as they missed what had been described as a “high bar” set by Wall Street.
Tesla reported a 40% drop in profits. Its shares were down 12.3% on Wednesday as a result, their worst drop since January, Dow Jones data showed.
On the other hand, Alphabet surpassed expectations for profit and sales growth, but ad revenues from its YouTube segment weren’t quite as strong as analysts had hoped.
But perhaps the most damaging details from the two earnings reports were signs that Alphabet’s aggressive investment in AI might take longer than hoped to pay off. The company’s shares lost more than 5% Wednesday.
”There were signs that it’s going to take longer for them to see a payoff from their investment in AI,” said Kim Caughey Forrest, founder and chief investment officer at Bokeh Capital Partners, during a Wednesday call with MarketWatch. “To me, that is key.”
Investors appear to have been blindsided by the selloff in the Magnificent Seven stocks over the past two weeks — but there were signs nonetheless.
According to data from BondCliQ, investors have been dumping corporate bonds issued by Magnificent Seven members for the past two weeks, although the sales haven’t had much of an impact on yields. Bond yields move inversely to prices.
In addition to Tesla, Alphabet, Meta and Amazon, the Magnificent Seven includes Microsoft Corp., Apple Inc. and Nvidia Corp.
As tech stocks slumped, the small-cap Russell 2000 index and value-oriented Dow Jones Industrial Average also moved lower — but their losses of 2.1% and 1.3%, respectively, were relatively more modest. Both gauges have outperformed since the start of July.
Other corners of the market saw strength persist, with utilities stocks and healthcare stocks seeing notable gains.
But their strength wasn’t enough to prevent the S&P 500 from falling 2.3% and snapping a 356-day streak without a 2% decline, its longest since 2007. The tech-heavy Nasdaq Composite, meanwhile, lost 3.6% at 17,342.41, its worst day since October 2022.
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