A tech bear market but S&P bulls still alive
Some of the technology sector’s biggest names have suffered huge losses in the past few weeks, but this could be an opportunity according to some. City writer Graeme Evans reports.
11th March 2025 13:07
Wall Street’s Magnificent Seven are in bear market territory, after a turbulent session on the 25th anniversary of the dotcom peak led to the worst showing by Tesla Inc (NASDAQ:TSLA) shares since 2020.
The group of mega-cap stocks, which also includes NVIDIA Corp (NASDAQ:NVDA), Apple Inc (NASDAQ:AAPL) and Meta Platforms Inc Class A (NASDAQ:META), closed more than 20% lower than their price in mid-December following last night’s fall of 5%.
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Tesla shares slumped 15% overnight and are now down by 54% from their December peak, meaning the electric car maker is available to buy at a comparable price to the end of 2020.
The S&P 500 index fell 2.7% Monday, posting its worst daily year-to-date performance for the third time in six sessions. The 4% fall by the Nasdaq Composite was its worst since 2022.
The selling came as the Trump administration signalled potential temporary “disturbance” to economic activity and higher inflation in pursuit of its economic agenda. The comments sent the VIX index of volatility up 4.5 points to a new 2025 high of 27.86 points.
The S&P 500 index has now given up all the rally since Trump’s re-election on 4 November, when sentiment was boosted by hopes of business deregulation and looser fiscal policy.
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The reverse since then has exceeded the declines of last summer when the S&P 500 index fell 8.5% from peak-to-trough. Nvidia shares have lost a fifth of their value since mid-February, despite posting more forecast-beating quarterly figures in that period.
Broadcom Inc (NASDAQ:AVGO), the semiconductor and infrastructure software firm whose valuation is now larger than Tesla’s, is down 19.4% and ARM Holdings ADR (NASDAQ:ARM) has fallen 25% in just under a month.
Deutsche Bank strategist Jim Reid said: “Even before the tariff news escalated this month, the Magnificent Seven had been underperforming.
“In February when the S&P 500 was down 1.4% the Magnificent Seven declined 8.8%. I think the DeepSeek news was much bigger than people gave credit for after the initial attention calmed down. The epic valuations have also contributed.”
Valuations have soared on the back of the AI spending boom, leading to comparisons with the dotcom bubble of 2000. The rapid rise of US technology stocks reached its peak on 10 March 2000, before bursting the following year.
Microsoft Corp (NASDAQ:MSFT), whose earnings are 10 times more than in 2000 when it was the largest company in the world, has been one of the technology sector’s more resilient performers of the past month.
The US selling has also impacted sectors outside tech as investors grow wary of the risks of a downturn following Trump's comments over the weekend. The Dow Jones Industrial Average is down 6% since mid-February, compared with 1.4% for the FTSE 100 index, while the small cap Russell 2000 last night reversed by 2.7% to its lowest level since last June.
Investor nerves have also been impacted by a potential US government shutdown this weekend and the prospect of “reciprocal” tariffs being announced on 2 April.
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UBS Global Wealth Management now puts the chances of a stagflationary or cyclical downturn at 30%, compared to the 20% assigned to an upside scenario.
Under its base case, to which UBS attaches a 50% probability, US economic growth is likely to moderate compared with last year but remain positive.
The bank believes policies which contribute to a potentially protracted slowdown in the US would require a shift from an approach which has so far focused on achieving quick success.
It said: “Our base case is therefore characterised by an aggressive tariff policy, but for the average effective tariff rate for US imports to remain below 10%. We also expect rhetoric and action on government spending cuts to cool down by late spring.”
UBS maintains an “attractive” outlook on equities as it continues to expect the S&P 500 index to rise to 6,600 by the end of 2025. It opened today’s session at 5,614.
“We also expect ongoing structural AI advancements, and would consider using pockets of tech volatility to build portfolio exposure to quality AI stocks via buy-the-dip and structured strategies.”
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