Last week, the United States stock market staged a dramatic "reshuffle". The once-sought-after "Mag7" (Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Tesla and Meta) tumbled 5% this week; Chip stocks suffered a "Waterloo", and the semiconductor index plummeted nearly 9%. The sudden market rotation came as inflation data unexpectedly fell last week, reinforcing investors' expectations for a rate cut by the Federal Reserve in September.

Investors began to sell Mag7

Recently, a considerable number of investors have indeed sold their NVIDIA shares. According to United States Securities and Exchange Commission (SEC) regulations, institutional investors with assets under management (AUM) of at least $100 million must file within 45 days of the end of each earnings quarter13F documents to facilitate investors to keep track of market changes.

According to this rule, in the Q1 quarter of fiscal year 2024, at least 8 large investors chose to sell Nvidia shares, including many leading players with heads and faces, such as Philippe, the founder of Cotu Capital Laffont, head of Castle Capital, Ken Griffin, Israel of the Millennium Fund Englander, Steven of Point72 Cohen。

But it's also important to be clear that investors aren't targeting Nvidia. Mag7, including Nvidia, (Magnificent Seven) stocks have seen a massive sell-off.

SEC filings show that Bezos has cashed out his shares several times this year, the most recent of which occurred from July 5 to July 8, when the bigwig sold 4,314,109 Amazon shares in three tranches, cashing out a total of $863.5 million. The biggest move occurred in February, when Bezos sold 50 million shares of Amazon stock in nine trading days, cashing out more than $8 billion.

Zuckerberg also made the same choice. Also according to SEC regulatory filings, Xiao Zha sold his shares almost every day from November 1, 2023 to the end of 2023, and the overall transaction size reached 1.28 million shares, which was converted into $428 million in cash.

In terms of external investors, hedge funds represented by Goldman Sachs have ended their continuous buying strategy, gradually reducing the proportion of Mag7 in their portfolios from the fourth quarter of 2023, and controlling their positions below 15% by the first quarter of 2024. Correspondingly, the bulls gave 25% of their positions to the more SME-oriented Russell 3000 index.

|Mag 7. The light is no longer there, and the market pattern has changed drastically

Last week, the S&P 500 equal-weight index rose nearly 3%, but due to the large weight of big tech equity," Mag said 7 "The stock price fell en masse, and the market capitalization-weighted version fell. Meanwhile, the Russell 2000 small-cap index has surged 7% since last Thursday. More than 1,500 Russell companies rose in a remarkable breadth of gains.

Market analysis points out that the main reasons for the switch of market style are as follows:

Cooling Inflation: Lower-than-expected inflation data released last week reinforced market expectations for a rate cut by the Federal Reserve in September. Interest rate sensitivity: Smaller companies are generally more indebted and more sensitive to interest rate changes, so they benefit significantly from the expectation of interest rate cuts. Earnings growth comparisons: Earnings growth for other companies is improving compared to the "Big 7".

Investor Positioning: BofA analysts noted that short covering was one of the key factors driving the Russell 2000 higher, with stocks with the heaviest short positions performing best.

Ron, chief market strategist at Lazard, a well-known investment bank In an interview with the media, Temple advised investors: "I don't think anyone can be smart enough to predict exactly when Mag7's share price will peak...... But my view is that there is not much room for AI to drive stock prices when some market tools have failed. ”

Navellier made the same judgment & Louis, founder of Associates Navellier, who wrote in a market note in February, wrote: "Mag7's dominance in the stock market is changing, and money is flowing accordingly to small and medium-sized companies that are doing better and are booming in earnings." ”

Can tech stocks "regain their strength"?

Some analysts believe that despite the recent setbacks, the potential of tech giants should not be underestimated. Nvidia, for example, saw its shares soar 72% in the following two months after the last drop of a similar magnitude.

Jim, Growth Portfolio Manager, AllianceBernstein Tierney believes that the underlying trends driving growth in the Big Seven and other AI-related stocks are "still intact," although their earnings advantage over the rest of the market may be waning.

As for the S&P 500, Jurrien, head of global macro at Fidelity Timmer cautioned that whether the S&P 500 can continue to rise "depends on whether there is new money flowing into the market and choosing to invest in stocks other than the 'Big Seven,' or whether it's just an internal rotation where investors sell the 'Big Seven' to buy other stocks." "