$600B Vanished Overnight! Are 'Big 7' Abandoned?

As the Federal Reserve's rate cut expectations intensify, traders with more options are starting to pull out of tech giants that have performed strongly recently.

On Thursday, the S&P 500 index (SPX) saw its longest winning streak since November interrupted by large tech stocks that have driven the index's year-long rally.

Due to inflation data sparking bets that the Fed could cut rates as early as September, investors' selling of the so-called "Big Seven" hit a record high not seen in over a year — NVIDIA (NVDA) closed down 5.57%, Meta Platforms (META) fell over 4%, Tesla (TSLA) dropped 8.44%, while Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), and Amazon (AMZN) each fell more than 2%.

Tesla's delay of its robotaxi launch plan is a key event for Tesla's stock, which many investors have high hopes for.

The "Big Seven" collectively lost nearly $600 billion in market value in a single day (equivalent to 4.35 trillion yuan), which is equivalent to losing a J.P. Morgan Chase (market value of $595.46 billion).

This year's big winners in the US stock market are out, pushing the iShares MSCI USA Momentum Factor ETF (MTUM) to its worst performance since May.

This rotation has brought some astonishing shifts to the US stock market.

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The S&P 500 index fell 0.9% in a single day, despite a rebound in nearly 400 of its constituent stocks.

The S&P 500 Equal Weight Index soared 1.2%, marking the largest increase since November 2020.

The small-cap Russell 2000 index (whose constituent companies often have lower credit ratings and higher borrowing needs) rose 3.6%, its best performance relative to the S&P 500 index since March 2020.

Meanwhile, the Bloomberg index tracking the "Big Seven" fell 4.2%, the largest drop since October 2022.

Alexander Morris, Chief Investment Officer at F/m Investments, said over the phone, "People are using this opportunity to declare 'This is a good time to reassess whether we should only allocate to certain stocks.'

I wouldn't view yesterday's situation as the formation of any trend, but it emphasizes that the market is looking for something different, some different trades, not just long on the top seven tech companies or long on large tech companies in general."

As of Wednesday this year, the NASDAQ 100 index (NDX) has risen by 23%, with an increase in market value of $6 trillion.

For months, investors have seen few options other than a handful of winners in the stock market, but if the Fed takes action to lower interest rates, they suddenly have many more options.

Official data shows that inflation cooled broadly in June, with the core CPI annual rate slowing to the slowest pace since 2021, sending the strongest signal to date that policymakers could cut rates soon.

Matt Orton, Chief Market Strategist at Raymond James Investment Management, said, "This confirms my optimistic view that the economy remains in good shape."

This is expected to shift the market's focus on stocks from earnings advantages to price advantages, and drive a broad rise in the stock market.

Economic data has driven a Goldman Sachs index of unprofitable tech stocks (such stocks typically have heavier debt burdens) up 3.8%.

Homebuilding companies such as DR Horton Inc., PulteGroup Inc., and Lennar Corp. were among the largest gainers in the S&P 500 index on Thursday, with the industry index's increase being the largest since November 2022.

Utility stocks in the S&P 500 index rose 1.8%, the largest increase in a single day since April.

On Friday, large banks like J.P. Morgan Chase will release earnings reports, kicking off the second quarter earnings season, which will shift investors' attention to another catalyst.