Big Tech Earnings: A Key Driver and Risk to the Bull Market
Monday's market sell-off highlights the significance of Big Tech earnings in sustaining the bull market.
DeepSeek's Developments Fuel Concerns
Concerns over rising competition from Chinese AI company DeepSeek triggered a sell-off in Big Tech stocks, led by a 16% decline in Nvidia. Other "Magnificent Seven" members, including Microsoft, Alphabet, and Tesla, also lost value.
Strategists' Warnings and Fragility
The slowing growth of Big Tech earnings has been a potential risk for over a year, with strategists citing high index valuations and the concentration of over 40% of the S&P 500 in the top 10 stocks.
Uncertainty Causes Initial Sell-Off
Unlike other risks, the recent sell-off was sparked by a specific event: DeepSeek's new AI model raised doubts about the sustainability of high earnings expectations.
"Magnificent Seven" Earnings Dominance
Despite projections of slower growth in 2025, Big Tech earnings remain a key driver of the bull market, with the "Magnificent Seven" expected to grow earnings by 21.7% in Q4 2024.
Return to Fundamentals
The sell-off brought investors back to fundamental factors, such as the impact of technology on market returns.