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Don't sweat the Big Tech stock sell-off
Wall Street strategists remain bullish on a market that's broadening, rotating, and still climbing
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Good morning everyone! GDP data for the second quarter is due this morning at 8:30 a.m. ET. Analysts expect a 2.4% pace of growth.
Now, every Wall Street source I spoke with yesterday told me that Wednesday’s very red stock market is not a reason to sell.
To them, it isn’t time to hit the doomsday button on your portfolio just yet — and I agree.
Let’s dive in.
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‘It’s not a panic, it’s setting priorities’
It’s instinctual to hit the panic button when catastrophe strikes.
Luckily for investors, the current market sell-off doesn’t resemble anything close to catastrophe.
The Nasdaq Composite and S&P 500 both logged their worst days since 2022 on Wednesday, with tech’s heaviest hitters all tumbling.
Tesla down 12.1%
Nvidia down 6.9%
Alphabet down 4.8%
Microsoft down 3.5%
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That said, Wall Street strategists told me that the market outlook for the rest of the year remains upbeat and constructive.
And after a blistering start to the year, a pullback feels right on time.
Importantly, weaker performance in tech will lead to less lopsided rallies and a market that isn’t so top-heavy, two critical ingredients to a sustained and healthy bull run.
While this week might hurt for stock investors, it’s a necessary step toward a more robust market overall, says Callie Cox, chief market strategist for Ritholtz Wealth Management.
“The sell off we’re seeing is probably the healthiest, most fundamental sell off you could see,” Cox told me.
She pointed out that roughly one-third of the S&P 500 climbed Wednesday even though the index finished red, which hasn’t happened in more than two decades.
In her view, tech stocks are selling off for the right reasons. Index investors, then, have little reason for concern.
“People are cutting back on tech but leaving the rest of their portfolios alone,” Cox said. “It’s not a panic, it's setting priorities, rotating money. That needs to happen, as we’ve been in a very narrow bull market.”
The prospect of an imminent rate cut from the Fed has helped fuel wider market gains.
As the July small-cap rally illustrates, investors are becoming more comfortable buying into sectors that are more sensitive to interest rates, like real estate and dividend stocks.
Helped along by AI enthusiasm, tech stocks have accounted for an absurd share of the markets’ advance this year and last. The rotation we’ve seen over recent weeks is less of a red flag and more of a normalization.
To that point, the chief investment office at Merrill and Bank of America forecasts a strong showing for small-cap stocks in the months ahead, which are undervalued compared to large-caps.
“What I’ve been saying to clients is, sharp rotations are why you’re diversified,” Marci McGregor, the head of portfolio strategy for the chief investment office, told me.
A slowdown in earnings and stock gains for Magnificent Seven names, she said, should happen at the same time as those things improve for other sectors.
DataTrek Research cofounders Nicholas Colas and Jessica Rabe wrote in a note Wednesday that seasonality, too, suggests more upside ahead.
Over the last four decades, the S&P 500 has peaked in the fourth quarter of a year 70% of the time.
The election could bring some choppy trading, but history is on the side of the bulls for now.
With volatility in mind, McGregor dubbed the current market a “buffalo market”:
“It’s in the bull family, but it can wander. We remain overweight on US equities.”
Comments or feedback? Hit reply to this email or let me know on X @philrosenn.
*At a glance:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/7a6cd9f2-1cb2-4de4-8d6f-030eb1989b88/Opening_Bell_Daily_CHART_DOWNLOAD_416__47_.jpg?t=1721866602)
*Data as of Wednesday 8:30 p.m. ET
Elsewhere:
🌯 Chipotle crushed it on earnings. The popular burrito chain beat expectations even as consumers grow more cautious on spending. After hours on Wednesday, the company reported revenue, earnings, and same-store sales that all beat Wall Street forecasts. Chipotle’s CEO called the quarter “outstanding.” (Yahoo Finance)
📉 The Nasdaq 100 shed $1 trillion Wednesday. It was the worst day since October 2022. The list of laggards included the AI darlings that have grown accustom to so much fanfare including Broadcom, Nvidia, and Arm. The sell-off began with a lukewarm earnings report from Alphabet late Tuesday. (Bloomberg)
👜 LVMH stock dragged luxury names lower. Weaker-than-expected profits for the industry bellwether name led to a sector-wide sell off. Prada, Hermes, Brunello Cucinelli, and Cartier-owner Richemont all traded lower on Wednesday after LVMH’s earnings report. Concerns about luxury goods demand in China are bubbling to the surface. (FT)
Rapid-fire:
The S&P 500 snapped its longest streak without a 2% decline since 2007 (Bloomberg)
A new study shows that when someone in Congress sells a stock short, they almost always make money (Sherwood)
Ford stock tumbled 11% after missing badly on earnings (Yahoo Finance)
Russian oil exports have hit the lowest in 7 months amid sanctions, OPEC+ cuts (Business Insider)
Oil billionaires are betting on Trump’s energy agenda (WSJ)
Last thing:
Final S&P 500 heat map for the day:
The Magnificent 7 lost over $600 BILLION of market cap and the S&P 500 lost $1.1 TRILLION of market cap.
Complete decimation of large cap tech today.
— The Kobeissi Letter (@KobeissiLetter)
8:10 PM • Jul 24, 2024
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