The renowned ‘Magnificent 7’ of U.S. megacap tech stocks has experienced a significant retreat as first-quarter earnings updates commence this week, notably with AI-chip leader Nvidia NVDA.O plunging 10% on Friday amid a tense week for the sector.
Global markets stabilized more broadly on Monday following a weekend in the Middle East without further missile exchanges between Israel and Iran, a situation already anticipated since Friday.
However, the post-weekend shift away from ‘safety trades’ has resulted in U.S. crude prices CLc1 dropping to their lowest level this month, and gold prices XAU= declining by 1%.
With four of the Magnificent 7 scheduled to report corporate updates this week – Tesla TSLA.O, Meta META.O, Microsoft MSFT.O, and Alphabet GOOGL.O – the notable pullback in tech giants is currently a top concern.
Nvidia’s 10% decline on Friday, a leading indicator for artificial intelligence, marked the most dramatic move in what was a lackluster week for the sector.
Despite still being up over 50% for the year, Nvidia shares have fallen by 22% from last month’s highs to their lowest point since February.
The cause of the downturn is unclear, although some analysts attribute it to a 23% drop in a smaller related stock, Super Micro Computer SMCI.O, due to a lack of guidance on its upcoming earnings report.
Before Nvidia’s decline, it was already a tough week for tech and chip stocks. Despite Nasdaq futures NQM24 rebounding about 0.5% before Monday’s bell, the index had its worst performance last week since 2022, with a drop of over 5%.
A notable factor in the downturn was Taiwan’s TSMC TSMC.O, which experienced a sharp decline after its earnings update earlier in the week.
Additionally, Netflix NFLX.O plummeted nearly 10% on Friday after its second-quarter revenue outlook fell short of analyst expectations.
The NYFANG index .NYFANG, once dominant, suffered an 8.3% loss last week. UBS analysts downgraded the ‘Big 6 Tech+’ stocks, excluding Tesla, to neutral from overweight.
In the broader context, Apple’s losses for 2024 now exceed 14%, while Tesla’s significant decline of over 40% this year shows no signs of slowing down.
Tesla faces numerous challenges, from a decline in global electric vehicle demand to intense competition with Chinese rivals, corporate governance issues related to Elon Musk’s payout, and various product glitches.
Moreover, the prevailing ‘higher-for-longer’ perspective on Federal Reserve interest rates exacerbates stretched valuations in the sector. The ongoing earnings season underscores the high bar required to impress the market.
In the macroeconomic sphere, U.S. Treasuries and the dollar continue to react to the persistent Fed view, robust economic data, and the contrasting situation in Europe, where interest rates are expected to decline first.
Two-year U.S. Treasury yields US2YT=RR surged above 5% again on Monday, with a two-year paper auction scheduled for Tuesday.
The dollar remains strong, approaching last week’s highs against the Japanese yen JPY=, while the Bank of Japan convenes later this week.
Additionally, with the European Central Bank indicating plans to cut its key policy rates as early as June, the dollar maintains its strength against the euro.
According to the latest CFTC data, speculative long positions in the dollar have increased, reaching $28.51 billion – the largest position since June 2019.
On Monday, sterling GBP= experienced significant volatility, plummeting to 5-month lows following a surprisingly dovish speech from Bank of England deputy governor David Ramsden, who indicated expectations of inflation falling to 2% this quarter and remaining at that level for the next couple of years.
U.S. stock futures are higher, and most other global stock markets are also firmer. Hong Kong stocks .HSI surged over 1.5%, while mainland shares slipped .SSEC.
This was in response to China’s securities regulator’s decision on Friday to enhance Hong Kong’s status as a global financial center by facilitating listings for leading Chinese companies and expanding the Stock Connect cross-border investment scheme.
China left benchmark lending rates unchanged at its monthly fixing on Monday, as expected.
In Europe, bank earnings will take center stage this week as BNP Paribas BNPP.PA, Deutsche Bank DBKGn.DE, Barclays BARC.L, and Lloyds LLOY.L all report.
Among the top movers in the stock market on Monday, Galp Energia GALP.LS surged 17% after the Portuguese company announced that the Mopane field off Namibia could potentially contain at least 10 billion barrels of oil.
