Tech stocks plunged yesterday after President Trump announced in a “proclamation” that he was imposing a new 25% tariff on imports of computer chips from foreign countries. Every single one of the Magnificent Seven tech stocks was down by the closing bell yesterday. Meta suffered the worst, down 2.47%. Oracle (not in the Mag 7 but closely related) was down 4.29%, perhaps because it is the hyperscaler most dependent on imported chips for its AI data center business.
The S&P 500 closed down 0.53%.
However, S&P futures this morning were up 0.36% prior to the opening bell. Traders may be buoyed by the fact that there is a rotation away from the Mag 7 going on among investors in S&P 500 stocks. The index was dragged down yesterday largely because the Mag 7 performed so poorly. But the notional “equal weight” S&P 500 actually rose 0.41%. It’s up 3.62% this year while the normal index is up only 1.18%.
The implication is that traders are selling down the Mag 7 but buying most of the other stocks.
Deutsche Bank reported that 318 of the S&P 500 stocks went up yesterday. “There was still a lot of resilience among equities more broadly, as most of the S&P’s constituents still advanced … We saw more of the rotation pattern at play since the start of the year, with the small-cap Russell 2000 (+0.70%) hitting a new record as it outperformed the S&P 500 for the ninth session in a row. Indeed, the Russell 2000 is now up +6.84% YTD, in contrast to a -1.49% decline for the Mag-7,” Jim Reid and his team told clients this morning.
As usual, retail investors led the way, according to JPMorgan. “This past week was exceptional for retail, sustaining the momentum from earlier this year. Retail investors bought $12.0B in cash equities—the largest weekly inflow since the post Liberation Day V-shape recovery,” Arun Jain and his team told clients.
Most of that was bought in the form of exchange-traded funds but $4.9 billion came in trades on single stocks that were not the Mag 7. Retail investors bought tech stocks that were not Mag 7 companies at 3.7 times the standard deviation above the average, Jain calculated.
Notably, the collapse of the Mag 7 is being driven in part by White House policy announcements. On that theme, Pimco chief investment officer Dan Ivascyn told the Financial Times that he was “diversifying” the asset manager’s portfolios away from U.S. equities precisely because the president’s economic policies are so volatile.
“It’s important to appreciate that this is an administration that’s quite unpredictable,” he said. “We’re diversifying … We do think we’re in a multiyear period of some diversification away from U.S. assets.”
ING’s Chris Turner said something similar in his note this morning. Referring to the wild swings in the price of oil, triggered by Trump’s on-again, off-again threats to bomb Iran, and the White House criminal investigation into U.S. Federal Reserve chairman Jerome Powell, he said, “Investors remain reluctant to chase new themes emerging from Washington on fears of policy reversal. That is probably the reason that the dollar and Treasuries have not sold off on the legal investigation into Fed Chair Powell. Ultimately, however, we think this attack on the Fed will add to the case for de-dollarisation.”
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were up 0.36% this morning. The last session closed down 0.53%.
- STOXX Europe 600 was up 0.37% in early trading.
- The U.K.’s FTSE 100 was up o.5% in early trading.
- Japan’s Nikkei 225 was down 0.42%.
- China’s CSI 300 was up o.2%.
- The South Korea KOSPI was up 1.58%.
- India’s NIFTY 50 was down 0.26%.
- Bitcoin was up at $96.7K.
