Apple leads $370bn rout as party for 'Magnificent 7' winds down

Shares in Apple, down nearly 5% in the time period, lead the slump that has erased roughly $370bn (€340bn) in market value

The so-called Magnificent Seven includes Apple, Amazon, Google-owner Alphabet, Microsoft, Facebook-owner Meta, Tesla, and chipmaker Nvidia. 

The largest technology stocks that lifted the broader stock market last year are having a less-rosy start to 2024.

The so-called Magnificent Seven, which includes Apple, Amazon, Google-owner Alphabet, Microsoft, Facebook-owner Meta, Tesla, and chipmaker Nvidia, have slipped for last four consecutive trading days, the longest losing streak in a month, according to the Bloomberg Magnificent 7 Price Return Index. 

Shares of Apple, down nearly 5% in the time period, lead the slump that’s erased roughly $370bn (€340bn) in market value. 

“We don’t know if last year’s rally has fully ended, but it is completely normal to expect markets will pull back after a rally like we saw,” said Steve Sosnick, chief strategist at Interactive Brokers Group. “Without the year-end factors that turbocharged the rally, I think we’re seeing the party winding down.”

It’s a signal that investor doubts over the sticking power of the 2023 rally were well-placed. Though the group surged more than 100% last year, driven by a frenzy in artificial intelligence, gains cooled in the second half of 2023 as investors mulled the US Federal Reserve’s ability to execute a soft landing for the US economy, which would likely mean fewer interest rate cuts than expected.

“You’re not going to get high-single-digit or double-digit earnings growth if we get something worse than a soft landing,” Mr Sosnick said. “But we’re not going to get six cuts with a soft landing.” 

A few members of the group have also seen specific stock pressure early this year. Apple shares have been weighed down after gaining a new bear: Barclays analysts this week downgraded shares of the tech giant to underweight, saying they expect soft demand for iPhones going forward.

Tesla has shed more than 8% in the last four days, its longest streak of losses since November. Though Tesla reported that it delivered more electric vehicles in the fourth quarter than analysts expected, the company lost its place as the top seller of electric cars to China’s BYD. 

To be sure, it is likely too early to say the tech-focused rally is over. Most of 2023’s gains recouped losses from a year earlier, and some of the group - Amazon, Alphabet, Meta and Tesla - are still below their all-time highs, signaling they could have room to run.

But, the largest tech names also have their work cut out for them in 2024. The companies need to continue to deliver not only solid technology, but profitable technology going forward, according to Mr Sosnick.

“In December everyone bought the sizzle,” he said. “Now we have to see if the steak is any good.” 

Traders hoping that a pan-markets year-end rally would pick up where it left off got the opposite on 2024’s first trading day earlier this week, a session that featured one of the worst-ever concerted drops in stocks and bonds to start a year.

While the first few days say little about what markets will do for the rest of 2024, the synchronised retreat signalled at least some hesitation among investors to chase a fourth-quarter rally that boosted both US shares. 

“The most common concern or belief we have heard from investors is that overbought conditions and euphoric sentiment will set up for a reversal to start 2024 in both bond yields” and stocks, said Dennis DeBusschere, founder of 22V Research. “The overbought conditions and sentiment readings are tough to argue with.” 

On Wednesday, "global stock indices continue their rout on repriced rate cut expectations and heightened tensions in the Middle East", said Axel Rudolph, senior market analyst at online broker IG. 

• Bloomberg. Additional reporting Irish Examiner