The big tech stocks took a huge rollercoaster ride overnight, with their shares plummeting right after hitting a record high. However, Wall Street analysts have reassured investors, claiming this is a “necessary process for the rally.”
Big Tech is the only one that fell… first since 1979
According to Yahoo Finance on Friday, the New York Stock Exchange closed mixed last night. The large-cap-focused Standard & Poor’s (S&P) 500 index closed at 5584.54, down 0.88% from the previous session. It initially surged to 5642.32 in early trading, showing an unstoppable upward trend, but later lost momentum, retreating to the 5500 level. Although 4 out of 5 stocks in the S&P 500 index rose, the plummeting stock prices of companies like Microsoft, which had been leading the rally amid the artificial intelligence (AI) boom, had a significant impact.
Due to declining Big Tech stock prices, the Nasdaq logged 18283.41, down 1.95% from the previous day’s close. The extent of the Nasdaq’s decline on this day marks the fourth-largest this year—both the S&P 500 index and the Nasdaq’s seven-day winning streak ended.
However, the Dow Jones 30 Industrial Average, which has a lower tech weight, closed 32 points (0.1%) higher than the previous trading day.
Foreign media reports like CNBC analyzed that “profit-taking selling poured out on Big Tech, which had been leading the AI rally.” Both Nvidia (-5.57%), Microsoft (-2.48%), and Apple (-2.32%) saw falls in their stock prices. Tesla plunged 8.44%.
In contrast, the Russell 2000 index, which focuses on small-cap stocks, surged over 3.5%. It was the second time since 1979 that the Russell 2000 index rose more than 3% while the S&P 500 index fell. CNBC’s analysis is that it is hard to find a historical precedent for the S&P 500 and Russell 2000 to show such a gap. It was evaluated that the winners and losers switched places in just one day.
Meanwhile, the CPI inflation rate announced by the U.S. Labor Department on this day fell short of expert forecasts, fueling expectations for a rate cut in September. The Labor Department announced that the June CPI rose 3.0% from last year. This is lower than the market forecast (3.1%) compiled by Wall Street, showing that inflation (price increases) has been slowing for three consecutive months since April (3.4%) and May (3.1%).
Rotation from Big Tech to smaller ones
However, Wall Street experts have been soothing investors.
Yardeni Research President Ed Yardeni said, “Today is the day when investors start rotating (rotation of popular buying) from the ‘Magnificent Seven (seven major Big Techs)’ to the rest of the market,” and stressed, “I don’t think today will continue to bring down the S&P 500. Rather, we’ll see more gains in the S&P 493 and small-cap stocks.”
Chief Investment Strategist of CFRA, Sam Stovall, also explained, “Investors are rotating. They are moving from large techs to smaller ones and into real estate,” stating, “They were waiting for signals that the U.S. Federal Reserve (Fed) is likely to start lowering interest rates and that this move is not a response to an economic recession.”
Activity in the bond market is proving this. U.S. Treasury yields fell overall on this day, which means that government bond prices have risen. Ross Mayfield, an investment strategy analyst at Baird, said, “somewhat dovish support from Powell led to a positive Consumer Price Index (CPI). Interest rates have significantly dropped, and there is a kind of rotation trade happening.
“However, the problem is that the market is too focused on big tech, which can make the rotation trade appear negative on the surface,” he added.
