Tech's Titans Falter as Upstarts Gain Ground
For the past two years, a handful of technology behemoths dubbed the "Magnificent Seven" have led the broader market higher. Companies like Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia saw their valuations swell to astronomical levels, propelled by pandemic-driven demand for their products and services.
However, recent weeks have seen a reversal of fortunes. Since mid-July, the Magnificent Seven have collectively fallen over 10%, significantly underperforming the rest of the S&P 500 which has gained around 4% over the same period. This marks the group's worst two-month stretch compared to the broader index since late 2022.
The drivers behind this shift are multifaceted. Firstly, concerns over economic growth and higher interest rates have dampened investor appetite for the previously highflying tech mega-caps. Secondly, many of these giants are facing competitive pressures and saturation in their core markets.
In contrast, smaller, emerging tech players across verticals like artificial intelligence, cloud computing, cybersecurity and fintech are gaining traction. Nimbler and focused on next-generation technologies, these upstarts are benefiting from their ability to innovate and capitalize on evolving trends.
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But now a new set of AI stocks is set to take over. Full Story >>
But now a new set of AI stocks is set to take over. Full Story >>
The Fed's Next Move
The faltering performance of tech's leaders coincides with the Federal Reserve's ongoing efforts to tame stubbornly high inflation. Investors await the critical August jobs report on Friday for clues on whether the central bank will enact a hawkish 50-basis point rate hike or a more modest 25-basis point increase at its September meeting.
While easing price pressures may grant the Fed flexibility to downshift the size of its rate rises, a robust jobs reading could prompt policymakers to maintain an aggressive anti-inflationary stance. Markets are currently pricing in around a 31% probability of a half-point hike.
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Economic Calendar for the Week:
Monday: U.S. markets closed for Labor Day
Tuesday: S&P Global manufacturing PMI, construction spending, ISM manufacturing index
Wednesday: JOLTS job openings, factory orders, Fed Beige Book, earnings from Dick's Sporting Goods
Thursday: ADP private payrolls, productivity and costs, jobless claims, services PMI, Broadcom earnings
Friday: August nonfarm payrolls report, unemployment rate, earnings
As the world's largest economy shows signs of slowing, the coming week's data deluge will significantly impact the Fed's rate trajectory and subsequently, prospects for both tech giants and upstart innovators.
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