By Wolf Richter for WOLF STREET.
The stock market hype and hoopla since December 2023 was focused on the Fed cutting rates, the Fed was going to cut six times, seven times in 2024, and then at Fed meeting after Fed meeting, these cuts didn’t happen, but it didn’t matter, the Fed is going to cut sometime, and to the moon, and these predictions and hopes of rate cuts continued to fuel the huge generational rally in the stock market, ever higher, to ever crazier valuations.
And then suddenly, on July 10, as if someone had flipped a switch it all turned around, and now the screaming about Fed cuts is louder than before, now it’s emergency cuts, its 50-basis point cuts, it’s everything the market couldn’t even dream about earlier this year, and so stocks should be spiking because of all these huge rate cuts raining down from heaven, but stock prices have tanked.
And recession fears aren’t new. The recession has been forecast to hit in the second half of 2022 after the yield curve inverted, and then in 2023, and then in 2024, and the yield curve has been inverted for two years and is still inverted, and there’s still no recession.
But something did happen. We got some so-so to lousy quarterly earnings reports from the big players, including from Tesla, Microsoft, and Amazon (oh dearie, it plunged 8.8% today upon its earnings release).
And Intel made a huge mess with falling revenues, narrowing margins, a big-fat loss, pausing its dividends, and a dreary outlook, with the cherry on top being the announcement of big global layoffs. Investors puked. Its shares plunged 26% today, worst day since 1974, to $21.48, lowest level since 2013.
Intel lost its way two decades ago when it became a powerhouse of financial engineering, ultimately wasting and incinerating $94 billion on share buybacks as its main strategy, while its competitors ran all over it. In 2021, the CEO was pushed out and Pat Gelsinger, an actual engineer, returned as CEO, and came up with a turnaround plan, etc. etc., and the stock surged on a wing and a prayer, but reality is tough, and it has set back in. And not just at Intel.
So Fed or no Fed, stocks had soared to ridiculous highs, and now someone started paying attention to the fundamentals suddenly? That’s the problem with fundamentals. They ruin the high-altitude party once people pay attention to them.
So let’s start with our drama queens, the Mag 7.
On Friday, shares of the Magnificent 7 combined – Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla – dropped another 2.4%, or by $369 billion in market capitalization.
Since the peak on July 10, they have given up 13.3%, or $2.26 trillion, in market cap, which has now fallen to a still ridiculously high $14.7 trillion, where they’d first been on May 28.
We’re still having trouble here in our little corner wrapping our brains around the concept that seven companies could be worth $14.7 trillion. Sure, it has come down from $17 trillion, but when we think about it, it gives us the willies for all kinds of reasons.
The seven stocks have taken 17 trading days to come down to here. But on the way up to the July 10 peak, the same distance took them 29 trading days. Escalator up, elevator down (data via YCharts).
The Mag 7 du jour was Amazon, whose shares tanked 8.8% today, to $167.74, after it reported earnings yesterday evening; revenues disappointed, the outlook disappointed even more; and there were other quibbles.
Since the July 10 peak, shares have dropped 16.5% and are now back where they’d first been in August 2020 (data via YCharts):
The stocks in the Mag 7, from the July 10 peak:
Tesla [TSLA]: -21.1%Nvidia [NVDA]: -20.4%Amazon [AMZN]: -16.1%Alphabet [GOOG]: -12.6%Microsoft [MSFT]: -12.4%Meta [META]: -8.7%Apple [AAPL]: -5.6%
Semiconductors got whacked. Intel was the standout today in that bunch with its 26% plunge. But the biggest of them all, Nvidia, dropped “only” 1.8%.
The PHLX Semiconductor Index [SOX] plunged 5.2% today and is down 22.0% from the peak on July 10. The drivers in the drop since July 10 have been the big ones: Nvidia -20.4%, AMD -28%, Intel -43%, etc, etc. It has been rough.
But the gains before July 10 have been gigantic, and so the 22% unwind of the SOX only took it back to February 2024, and the index is still up 10% year-to-date:
The Nasdaq Composite dropped 3.3% on Friday to 16,776, is down 10% from its peak on July 10, and back where it had first been on May 20, 2024.
After the majestic rise to the moon, the index is still up 11.8% year-to-date, 20.6% for the 12-month period, and 39% since the beginning of 2023.
But it’s closing in on its prior all-time high in November 2021. Another 5% drop will push the index below where it had first been in November 2021.
The S&P 500 Index lacked this kind of drama. It dropped 2.1% on Friday to 5,346, is down only 5.6% from its peak on July 16, and back where it had first been on May 29, 2024.
And it’s still up 12.1% year-to-date, and 19.4% for the 12-month period. In terms of the sell-off, no big deal so far. Twice over the past 24 years, the S&P 500 gave up 50%, so this little dip is nothing.
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