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Magnificent seven stocks take a pounding as investors rotate into cheaper companies

Nvidia alone lost more than $200bn in market value on Wednesday

Nvidia's share price has plunged. Photograph: Justin Sullivan/Getty Images
Proinsias O'Mahony's picture
Proinsias O'Mahony
Sun Jul 21 2024 - 06:15

The magnificent seven – Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla – have taken a pounding recently, losing more than $1.1 trillion (€1 trillion) in just five trading sessions.

Investor jitters over potential chip policy changes played a part, with Nvidia alone losing more than $200 billion in market value on Wednesday.

Policy aside, a sell-off has been coming, with investors needing little reason to rotate out of expensive tech stocks and into cheaper names. Bank of America’s latest monthly fund manager survey shows 71 per cent believe the magnificent seven is the most crowded trade in global markets.

This has been the case for 16 consecutive months, but the latest reading is the most extreme since October 2020. A rising number (43 per cent) think AI is in a bubble.

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Valuation concerns had become acute. Creative Planning strategist Charlie Bilello notes the ratio of growth stocks to value stocks in the US recently hit its highest level since March 2000, the peak of the dot-com bubble.

A rotation was overdue. Thus, even as big tech stocks were tanking, US small-cap stocks were soaring, with the Russell 2000 index gaining 11.5 per cent in five sessions, resulting in it outperforming the S&P 500 by a record amount. This year has been extraordinary, a year characterised by most stocks going nowhere fast while a small number of mega-cap tech stocks – particularly Nvidia – went skyward. Consequently, some kind of rotation looks healthy, paving the way for a more balanced market.

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