Earlier this year, the soaring performance of Big Tech stocks had a significant impact on the overall performance of the S&P 500. However, the tides have turned, and these stocks are now experiencing a decline, causing a ripple effect in the market.
From the beginning of the year until July 31, the S&P 500 witnessed a remarkable 20% increase, largely fueled by the impressive performance of Big Tech companies. During this period, Apple stock (AAPL) surged by over 50%, while Microsoft (MSFT) and Alphabet (GOOGL) saw similar gains. In addition, Nvidia stock (NVDA) more than tripled, and Meta Platforms stock (META) more than doubled.
These tech giants, collectively representing several trillion dollars in market value, accounted for a substantial portion of the S&P 500’s overall growth. They outperformed most other sectors and sparked immense investor and analyst enthusiasm, primarily due to advancements in artificial intelligence. Despite being less reliant on AI, Apple continuously exceeded earnings expectations, solidifying its high valuation.
However, a recent reversal of fortune has dampened the spirits of Big Tech. As of Thursday, these stocks collectively experienced a decline in the low teens from their summer peaks. Surprisingly, this decline is more severe compared to other sectors within the S&P 500, as the index itself has fallen approximately 10% from its summer peak.
The Big Tech Selloff: A Result of Bond Yields and Meta’s Earnings Report
The recent decline in Big Tech stocks can be attributed, in part, to a rise in bond yields. When long-dated bond yields increase, it diminishes the value of future profits. Despite the profitability of these tech giants, a significant portion of their earnings is expected to materialize in the years to come.
Furthermore, Meta’s earnings report this week has added to the concern surrounding the tech sector and the overall market. Although the company surpassed estimates with impressive sales and earnings growth compared to the previous year, there was a discussion of a potential slowdown in advertising spending. This comes as no surprise, considering that brands may restrict their marketing budgets due to the impact of inflation and higher interest rates. Additionally, Meta’s stock had already experienced substantial gains prior to the earnings report, prompting some investors to take profits. As a result, this selling pressure has not only impacted Meta but other tech companies like Alphabet as well.
Consequently, the downward trend in Big Tech stocks has caused a ripple effect throughout the S&P 500. While it is expected that these stocks will eventually stabilize, they continue to show a downward trend as of Thursday.