(Bloomberg) -- The S&P 500’s longest winning streak since November was stopped Thursday by the same cohort that’s powered the index’s yearlong rally — megacap tech.
Investors bailed out of the so-called Magnificent 7 stocks — Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Tesla Inc. — by the most in nearly a year as inflation data sparked bets the Federal Reserve will cut interest rates as soon as September. The rotation out of this year’s winners pushed the iShares MSCI USA Momentum Factor ETF on track for its worst day since May.
The reshuffle led to some stunning stats. The S&P 500 dropped 1% even as 400 of its members rallied. A version of the benchmark index that strips out market-cap bias surged 1.2%, beating the weighted index by the most since November 2020. The Russell 2000 Index — whose members tend to have lower credit ratings and higher borrowing needs — powered higher by 3.2%, its best performance relative to the S&P 500 since March 2020. And a Bloomberg index that tracks the Magnificent 7 tumbled as much as 4.1%, on pace for its biggest decline since July 2023.
“Folks use this as the moment to say ‘here’s a good point to reassess whether this is the only place we should be allocated’,” Alexander Morris, F/m Investments CEO, said by phone. “I wouldn’t look at today as forming a trend of anything, but it is underscoring the market was looking for something different, some different trade than just go-long the top-seven tech names or go-long big tech in general.”
The rotation from big tech comes after the Nasdaq 100 advanced 23% this year through Wednesday, adding more than US$6 trillion in market value. Investors who for months saw few alternatives to the narrow band of stock-market winners were suddenly faced with choices if the Fed moves to lower the highest rates in 15 years.
Official data showed inflation cooled broadly in June to the slowest pace since 2021, sending the strongest signal yet that policymakers can cut interest rates soon. That pushed a Goldman Sachs index of profitless technology stocks - the group that generally has a higher debt burden — 3.3% higher. Homebuilders like DR Horton Inc., PulteGroup Inc. and Lennar Corp. were among the biggest gainers in the S&P 500 on Thursday. Utilities in the benchmark gained 2%, headed for their best day since April.
It didn’t help that Tesla is delaying its planned Robotaxi unveiling — a crucial event for the stock that many investors have been pinning their hopes on. The shares fell as much as 8.3%.
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