Magnificent Seven lose $890 billion in week of back-to-back losses

The S&P 500 and Nasdaq suffered their first back-to-back weekly losses since March as an $890 billion wipeout in megacap tech stocks rattled markets.

S&P 500 fell 0.6%, Nasdaq slid 2.1% for the week — first consecutive weekly losses since March — as $890 billion was wiped from megacap tech stocks. The Dow Jones Industrial Average lost 0.4%.

"This sort of malaise that we've seen is going to need to be shaken by some positive catalyst," said Mark Luschini, chief investment strategist at Janney. "Investors are perhaps a little bit exhausted with that AI narrative story."

Tesla shares plunged 18% for the week, their worst performance since December 2022, while Amazon.com, Alphabet and Meta Platforms each slumped more than 6%. SpaceX fell 7.2%, down more than 40% from its post-IPO high and off more than $1 trillion in value from its market-cap peak. The selloff coincided with three developments: Brent crude briefly breaching $100 a barrel for the first time in two months, the 10-year Treasury yield jumping to 4.7% — its highest since January 2025 — and growing skepticism about returns on artificial intelligence investments after Alphabet and Tesla reported earnings.

Not all sectors declined. Energy stocks rose 3.8% to their highest since May, while industrials, materials and real estate each gained more than 1%. Chip makers were spared, with Micron Technology jumping 8.5% and Nvidia adding 2%. The rotation out of tech and into cyclical sectors suggests that investors are repositioning ahead of next week's earnings from Microsoft, Amazon and Meta — the three biggest AI spenders — which will determine whether the AI trade can regain its footing.

Oil Breaches $100 as Yields Hit 4.7%

Brent crude settled at $96.78 a barrel Friday after briefly topping $100 Thursday for the first time in two months, as Iran-backed Houthi attacks on a Red Sea oil tanker and escalating U.S.-Iran tensions fueled supply fears. The surge pushed the 10-year Treasury yield above 4.7% — its highest level since January 2025 — before it settled at 4.678%. The jump in yields added pressure on equity valuations, particularly for high-multiple tech stocks whose future cash flows are more sensitive to rising discount rates.

Rotation Into Cyclicals Gathers Pace

The S&P 500's industrials and materials sectors each rose more than 1%, while real estate closed at its highest level since April 2022. Energy stocks climbed 3.8% to their highest since May. The divergence between tech and cyclicals was the widest in months, with the Philadelphia Semiconductor Index falling just 0.5% on Thursday while the broader Nasdaq tumbled. Strong economic data provided some support: U.S. private sector activity expanded to an eight-month high in July, and new single-family home sales rose to 628,000 in June, above the 606,000 consensus estimate.

More than 130 companies in the S&P 500 have reported a 69% jump in second-quarter earnings so far, according to FactSet, with the growth rate expected to reach 37% by the end of the season. But the strong earnings backdrop has done little to stem the sell-off in tech, as investors increasingly question whether massive AI capital expenditure will translate into returns.

Elsewhere, the Liberty Justice Center filed a lawsuit Friday in the Court of International Trade arguing that Trump's newly announced 10%-to-12.5% tariffs targeting major U.S. trading partners are an unlawful attempt to restore the president's global tariff policy.

This article is for informational purposes only and does not constitute investment advice.