A single-week plunge, will Mag 7 bull market come to an end? Next, a heavyweight week is coming

In the past 9 months, the tech giant Mag 7 has been seen as a key engine of growth in the US stock market. However, since July, this momentum has quickly come to a halt.

After experiencing a sharp drop this week, 4 stocks in Mag 7 have fallen by more than 10% from their recent highs, with Nvidia and Tesla dropping by 17%, Meta and Google's parent company Alphabet falling by 14% and 12% respectively. Apple has performed relatively better but still dropped by 7%, while Microsoft and Amazon saw their stock prices slide by around 9%.

According to statistics, since reaching its peak on July 10th, the market value of Mag 7 has plummeted by a staggering $2 trillion.

This round of decline has not only made investors uneasy but has also raised doubts in the market about the future of tech stocks.

Market Doubts Arise Over AI Monetization, Funds Flowing into Value Stocks and Small Caps

Market analysts point out that despite the massive investments by Mag 7 companies in the field of AI, the market is beginning to doubt their monetization capabilities.

Based on the financial report released this Tuesday, Google's parent company Alphabet's second-quarter performance remained solid overall, but Wall Street has concerns about the profitability of AI, leading to a cumulative decline of over 7% this week.

Furthermore, with the Fed's interest rate cut almost certain, increasing election and geopolitical uncertainties, investors have started shifting funds into more value-oriented industries, a phenomenon described by the media as an "unprecedented scale of stock market rotation in history".

The S&P 500 index and the Nasdaq index fell by 2.3% and 3.6% respectively on Wednesday, marking their worst trading day since 2022. Although there was some recovery afterwards, they still recorded weekly declines of 0.8% and 2.1% respectively.

In contrast, the Russell 2000 index representing small-cap stocks performed exceptionally strong, with a weekly increase surpassing the S&P 500, marking a record unseen since at least the 1980s.

Heavyweight Events Ahead, Will Next Week See a "Bloodbath" for Tech Stocks?

In the upcoming week, the market will face a series of major events, including interest rate decisions from the three major central banks of the US, Japan, and the UK, US July non-farm payroll and PMI data, as well as macroeconomic data releases such as Europe's second-quarter GDP and July CPI.

At the same time, it is expected that 40% of S&P component companies will report earnings, including Microsoft and Apple from Mag 7, undoubtedly stirring up a new round of turmoil in the market Ted Mortonson, Managing Director of Bedell, told the media that for tech giants announcing second-quarter results next week, they need to calm the rotation by "exceeding expectations in every project."

Despite facing short-term market adjustments, in the long run, tech giants with a "fortress balance sheet" still have strong profit capabilities and market dominance.

According to a report by S&P Market Intelligence, Mag 7's free cash flow last year is expected to exceed $300 billion.

Furthermore, this strong financial strength is expected to not be severely impacted soon. According to market consensus cited in a BlackRock report using LSEG Datastream data, second-quarter tech giant stock earnings are expected to grow by 18% year-on-year, while the rest of the S&P 500 index components are only expected to grow by 2%.

Analysts believe that in the long run, as investors begin to focus on earnings estimates for 2026, the valuation of tech stocks will become more reasonable, attracting investors back.

Angelo Zino, Senior Technical Analyst at Cfra Research, said: "We believe that (tech stocks) are now at a critical moment, where earnings growth will outperform stock performance, which will help drive valuations to more favorable levels."

Many institutional investors have long seen this.

According to a report by Goldman Sachs, Meta, Microsoft, and NVIDIA were the top three AI stocks sold by hedge funds in the first quarter, with Amazon following closely. Nevertheless, Mag 7 (excluding Tesla) remains their most popular long-term position.

Zino stated that the earnings trajectory of tech stocks still significantly outperforms the broader market, and investors will eventually return to tech stocks. However, investors should also remember that the stock market does not rise in a straight line, and fluctuations and adjustments are part of the market