Big Tech Earnings Drive Market Sell-Off in Anticipation of 2025
Monday's market sell-off highlights the significance of Big Tech earnings as a driving force and investor expectation for the current bull market.
News from DeepSeek, a Chinese AI company, sparked concerns about competition for Nvidia and other tech giants, halting the US AI trade. As a result:
* Nvidia stock plummeted over 16%.
* "Magnificent Seven" companies Microsoft, Alphabet, and Tesla lost 2% or more.
* Broadcom, another major AI player, declined by 17%.
Strategists have long warned of the risks posed by slowing Big Tech earnings growth. With index valuations at multi-decade highs and the top 10 stocks accounting for 40% of the S&P 500, the rally is seen as increasingly vulnerable.
Traders reacted to the uncertainty by selling first: "When expectations are high, one skeptical headline can knock the market off its axis," noted Callie Cox of Ritholtz Wealth Management.
Unlike other risks such as interest rates or inflation, the potential collapse of Big Tech earnings growth lacked a clear explanation. DeepSeek's new AI model has provided a tangible reason for investors to question earnings expectations.
Despite a predicted slowdown in earnings growth in 2025, the Magnificent Seven are still projected to outperform the broader S&P 500. Their earnings are expected to rise by 21.7% in Q4 2024, compared to 9.7% for other tech stocks.
The sell-off serves as a reminder that:
* Tech earnings remain crucial for the bull market.
* Unexpected factors can trigger market volatility.
* Fundamentals ultimately drive investor decisions.