The Magnificent Seven appeared to be collapsing under their own weight on Monday, causing the Nasdaq to lose 4%, its largest one-day decline since 2022. The index has lost 12.4% over the last 13 trading sessions, which is uncannily similar to the losses seen during the first 13 days of the 2020 COVID-19 pandemic.
This came nearly precisely 25 years after the dot-com bubble burst, when the same tech-heavy index soared 500 percent in five years, and it makes sense because history tends to rhyme.
Wall Street is realizing the drawbacks of its own arrogance toward momentum, AI, and Trump.
The largest tech companies had been up for bid for months, but now investors are leaving in droves. Interestingly, the stocks that experienced the worst decline are those that rose in the initial months after Donald Trump was reelected in November.
Bespoke Investment Group data shows that the 100 best-performing equities from Election Day through the peak of the S&P 500 on February 19 are now down an average of 19.7 percent since that time. Only 1.4 percent has been lost by the 100 weakest performers from the post-election bounce.
As a result, the equities that benefited from the Trump-induced confidence are now driving the market lower.
Why are investors now anxious? This weekend, Trump reaffirmed his tariff plan and did not completely rule out a recession. As reported, Wall Street had first predicted that Trump 2.0 will implement pro-growth and pro-business measures. But more uncertainty than anticipated from tariffs is currently causing markets to struggle.
On Monday alone, the Magnificent Seven, which drove the majority of the 2023 and 2024 gains, had their market capitalization drop by around $760 billion. At 20% below its December peak, Roundhill’s Magnificent Seven ETF has entered a bear market.
Monday’s activity showed all the characteristics of a distressed market, even outside of the tech sector. Dubbed the terror barometer of Wall Street, the CBOE Volatility Index surged to 28. And just after the election, bitcoin, which had risen above $109,000, fell below $75,000.
A sobering reminder of how easily sentiment can shift is the speed at which this reversal occurred. Wall Street believed that Trump’s pro-business administration could only increase stock prices and that AI-related stocks were unstoppable.
Some investors are still suffering from an old lesson: the things that rise the fastest usually fall just as hard.
