From: allin
The stock market recently experienced its worst day since 2020 on a Wednesday, with the NASDAQ dropping 3.6% and the S&P 500 falling 2.3% [00:17:54]. Despite this, the NASDAQ and S&P were still up around 15% for the first half of the year [00:18:11].
Impact on Tech Giants
Several “Magnificent Seven” tech companies saw significant declines:
- Tesla dropped 12% after missing on earnings [00:18:47].
- Google fell 5%, attributed to lower-than-expected YouTube revenue, potentially indicating softness in the advertising market and consumer spending [00:18:53].
- Nvidia was down 7% [00:19:06].
- Meta dropped 6% [00:19:08].
Reasons for the Selloff
Several theories emerged to explain the market’s downturn:
- Rotation out of Tech Stocks — Many believe people are rotating out of the “Magnificent Seven” tech stocks, which may have become overheated, especially with the AI excitement [00:18:22]. This is seen as a rebalancing where portfolio managers shift from high-multiple tech stocks to more stable assets [00:21:31].
- Market Priced to Perfection — The market was seen as priced to perfection, making it vulnerable to any negative news [00:19:39].
- Political Volatility — Recent political events, such as a near assassination attempt on the former president and the current sitting president’s resignation, created doubt and anxiety among financial asset owners [00:19:43].
- Increased Volatility Index (VIX) — A spike in the VIX led people to go “risk-off,” prompting them to sell assets that had run up significantly, like the Mag 7 [00:20:06].
- Summer Season — The middle of summer often sees more vacations, leading to increased risk-off behavior and a desire for more liquidity [00:20:39].
Market Rotation
While tech stocks declined, other sectors saw gains over the preceding six months:
- S&P financials were up 11% [00:18:40].
- S&P energy was up 9% [00:18:43].
- S&P materials were up 9% [00:18:44].
This indicates a rotation from tech into financials, energy, and materials, which may have been undervalued in the market cycle [00:21:21].
Expert Commentary
- Chamath Palihapitiya noted that a broad-based set of revenue misses would signal consumer pressure, which he anticipates more strongly in the fall, but acknowledged the current market was priced to perfection [00:19:24]. He suggested that the selloff was a “huge rotation” out of the Mag 7 into other S&P names [00:20:24].
- David Friedberg believed it was definitely the “mini AI bubble deflating a bit” and a shift towards “Stable Market recovery” trades that would benefit from anticipated interest rate cuts [00:21:31].
- David Sacks cautioned against overreacting to a single day’s market movement, stating that “these are blips in the grand scheme of things” [00:22:22]. He emphasized the importance of monitoring Q3 and Q4 earnings reports later in the year [00:22:37].