The tech heavyweights, Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla, commonly known as the magnificent seven, have recently taken a massive hit, with over $1.1 trillion (£817 billion) vanishing in just five sessions of trade.
Changes in semiconductor regulations contributed to this downturn, with Nvidia itself seeing a $200 billion drop in market value in just one day. However, policy shifts aren’t the only factors at play. Investors had been heading towards a sell-off, as they found the need to divert funds away from high-priced tech stocks towards more affordable options. Indeed, Bank of America’s recent monthly fund manager survey indicates that 71 per cent believe that investment in the magnificent seven constitutes the most overly populated trade in worldwide markets.
For 16 successive months, this mindset has persisted, the most severe reading since October 2020. Moreover, an increasing number (43 per cent) now think that AI is in a speculative bubble.
Despite concerns about valuation becoming more serious, the temptation for investors to balance between growth and value stocks in the US market was growing. In fact, Creative Planning’s strategist, Charlie Bilello, observed that the growth-value stocks ratio in America recently reached its highest point since March 2000, the zenith of the internet bubble.
A repositioning of investment portfolios was long overdue. As such, even when the tech giants were experiencing losses, smaller-cap US stocks were flourishing, with the Russell 2000 index recording an 11.5 per cent surge in five sessions, thus outperforming the S&P 500 by an unprecedented margin. The market in 2021 was distinctive, a scenario in which most equities remained stagnant while a handful of prominent tech stocks – Nvidia included – soared. Therefore, a rotation appears beneficial, setting the stage for a more equitable market.