US tech giants have suddenly experienced an epic drop.
The black swan raided the "seven sisters of the US stock market" (Microsoft, Apple, Google, Nvidia, Amazon, Meta, Tesla), and the total market value in a single week evaporated more than 960 billion dollars (about 6900 billion yuan), the worst week in history. The trigger for this crash was the sudden release of a major bearish signal from AI giant supercomputers, which triggered market concerns and led to a crazy sell-off of funds.
After the worst week in history, US tech stocks are about to face a major test of the earnings season: Tesla, Meta, Microsoft and Alphabet, the parent company of Google, among the "seven sisters of US stocks", will announce their earnings next week. Analysts point out that with the collapse of the stock prices of tech giants, market funds may intentionally avoid the risk of performance thunderstorms in advance.
It is worth noting that market funds are withdrawing from the US stock market at the fastest pace in over a year. Peter Tchir, Macro Strategy Director at Academy Securities Inc., pointed out that some investors are selling heavily and will continue to sell. The JPMorgan research team points out in the latest research report that systemic funds such as momentum driven CTAs have begun to reduce their previously extreme stock positions, which may indicate a shift in market attitudes.
Black Swan Assault
Last week, the Black Swan raided the "Seven sisters of the US Stock Market" (Microsoft, Apple, Google, Nvidia, Amazon, Meta, Tesla), and the total market value of a single week evaporated more than 960 billion dollars (about 6900 billion yuan), the worst week in history.
Among them, Tesla led the decline, with a weekly decline of over 14%. In terms of market value evaporation, Nvidia, Apple, and Microsoft ranked in the top three, with weekly market value evaporation of $299.7 billion, $178.4 billion, and $169.3 billion, respectively.
It is worth noting that Nvidia's stock price plummeted by 13.6% that week, marking the worst week since September 2, 2022.
According to Dow Jones market data, Nvidia's stock price plummeted by 10% on Friday, marking the largest daily decline since March 16, 2020. The stock price plummeted nearly $85, breaking the record for the largest daily decline in history.
Nvidia's total market value evaporated by $212 billion in a single day, breaking the company's historical record and making it the second largest single day market value evaporation in American corporate history.
Jordan Klein, a resident analyst at Mizuho Securities, said that the entire industry in the US chip sector has experienced a pullback, with the speed of the pullback increasing day by day over the past week or so.
An analysis suggests that the market seems to believe that AI (artificial intelligence) trading will always rise. It has become crowded and is now rapidly retreating, which is a tech stock crash.
The trigger for this crash was the sudden release of a major bearish signal from the AI giant supercomputer (SMCI), which is ten times its size in a year.
According to a brief press release released by AMD, the company will announce its third quarter results on April 30th. However, the company did not disclose its performance forecast in accordance with the habits of previous quarters (which had previously raised performance guidelines for seven consecutive quarters), directly triggering market concerns and causing funds to start racing, which then spread to the US AI and technology sectors.
Wells Fargo Securities pointed out that Microelectronics did not provide positive performance guidance or disclose important AI data, which is seen as a significant negative signal. Analysts also pointed out that the failure of AMD to release its initial revenue report as usual may indicate that its quarterly performance was weaker than expected.
The stock price of AMD Computer plummeted by over 23% on Friday, and prior to that, AMD Computer was the most impressive AI technology stock in the US stock market in 2022 and 2023.
Analysts believe that in addition to concerns about the performance of US technology stocks, the recent delay in the Federal Reserve's interest rate cut expectation has also dealt a significant blow to the valuation of US technology stocks. The valuation of technology stocks is directly related to liquidity, and the delayed interest rate cut expectation will directly compress the valuation space of technology stocks. The sudden release of the "black swan" by AMD computers is only the trigger for the crash.
More significant tests
A week after the technology stocks in the US stock market suffered the worst in history, they will face a major test of the financial reporting season: Tesla, Meta, Microsoft and Alphabet, the parent company of Google, among the "seven sisters in the US stock market", will all announce their financial reports next week.
The first to appear is Tesla, one of the seven giants, which will release its Q1 2024 financial report next Tuesday.
Barclays analyst Dan Levy predicts that Tesla will experience its first negative free cash flow since the first quarter of 2020 in the first quarter, and the gross profit margin after deducting regulatory credit may drop to 14.6%, a 2.6 percentage point decrease compared to the previous quarter.
Meta's new Q1 financial report will be released early next Thursday. The market expects Meta's revenue to grow by 26% in the first quarter, with net profit almost double that of the same period last year.
Microsoft will release its financial report early next Friday morning. The market expects Microsoft to achieve over 15% growth in revenue and profit in the first quarter.
Google's parent company Alphabet will also release its financial report next Friday. Although Google's artificial intelligence plan is facing skepticism, the market still expects its first quarter revenue to grow by nearly 14% and net profit to grow by over 30%.
In addition, Amazon is expected to release its first quarter financial report by the end of April this year, while Apple and Nvidia will release their financial reports in early and mid May, respectively.
According to media think tank data, the first quarter profit of the "Seven sisters of the US Stock Market" is expected to increase by 38% year on year. If these seven companies are excluded, the profits of other companies in the S&P 500 index are expected to decrease by 3.9%.
Analysts point out that with the collapse of the stock prices of tech giants, market funds may intentionally avoid the risk of performance thunderstorms in advance. This also means that the performance growth of the "Seven sisters of the US Stock Market" may not be as expected.
Great withdrawal of funds
Currently, market funds are withdrawing from US stocks and junk bonds at the fastest pace in over a year.
According to data from LSEG Lipper, investors are withdrawing cash from junk bonds at the fastest pace in 14 months. According to Goldman Sachs Group's prime brokerage data, hedge funds have increased their short positions in US exchange traded funds at the fastest pace since 2022.
Peter Tchir, Macro Strategy Director at Academy Securities Inc., pointed out that some investors are selling and will continue to sell because their initial buying sentiment was not strong.
Kathryn Rooney Vera, Chief Market Strategist at StoneX Group, stated that inflation has replaced economic recession as the top priority for the Federal Reserve, with soaring commodity prices and sustained hot economic data forming the background for the market to enter a defensive strategy.
He believes that allocation must be more conservative, and now he will shift from the soaring stock market and invest funds in truly high-yield short-term notes.
The JPMorgan research team pointed out in the latest research report that there are significant similarities between the dynamics observed in April this year and those observed in August last year.
Analysts believe that when inflation unexpectedly rose and expectations of central bank interest rate hikes were not realized, investors began to consider reducing heavy holdings or increasing hedging against risk markets. The most distinctive feature is that the rise in the yield of two-year US treasury bond bonds eventually led to the sharp decline in the stock and credit markets since August last year.
According to the global market strategy report of JPMorgan Chase, the yield of two-year US treasury bond bonds rose from 3.8% at the beginning of May to 4.9% at the beginning of August last summer, which was largely ignored by the stock and credit markets. However, once the two-year US treasury bond bond yield began to consolidate at a high level of 5% or more, the stock and credit markets began to be affected from August last year. From the beginning of August to the end of October last year, the US stock market experienced a major adjustment of about 10%.
Since January this year, the yield of two-year US treasury bond bonds has risen from 4.2% to 4.988%, which is equivalent to the level in August last year.
But this growth was largely overlooked by stock and credit investors during the period from January to early April this year, similar to the situation from May to July 2023.
Therefore, the report warns that as the yield of two-year US treasury bond bonds consolidates at around 5%, it may repeat the "high yield long-term" scenario from August to October last year, which triggered concerns about a hard landing of the economy and hit risky assets.
The report indicates that systemic funds such as momentum driven CTAs have begun to reduce their previously extreme stock positions, which may indicate a shift in market attitudes.