In just seven trading days, the “Magnificent Seven” of the US sharemarket lost just over $US1 trillion ($1.7 trillion) of their market value within an overall market down almost 4.5 per cent.
The key question for investors is whether this is just a correction in what has been quite an ebullient market – or something more threatening.
The “Magnificent Seven” of the US sharemarket have lost more than $1.7 trillion in the past seven days.Credit: AP
It’s no coincidence that the meltdown in stocks, particularly the big technology stocks that drove the surge in US share prices over the past six months, began on April 11.
The market’s momentum was driven by a conviction that this was the year when US interest rates would start to fall. The year began with six rate cuts priced into financial markets.
The first two inflation prints for the year – which showed that progress in lowering the inflation rate had stalled – raised modest question marks over that conviction. Then on April 10, the March CPI data was released, showing the rate edging up; on April 11, the sharp sell-off of shares began.
While the earlier inflation data prompted forecasters to push the date of the first rate cut back from as early as March towards the middle of the year, the April release saw expectations shift quite dramatically.
If there were to be any cuts at all – some have even forecast a rate rise – they would be at the very tail end of the year, and one 25 basis point cut was now more likely than two. The prospect of six has evaporated.
For rate-sensitive stocks, particularly stocks priced at high multiples of their earnings, that has produced the equivalent of a cold shower. In a market where the average stocks trade about 27 times its historical earnings, the big tech stocks – trading at more than 42 times earnings – were particularly vulnerable.
What the Magnificent Seven’s $1.7 trillion meltdown tells us about the economy
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22.04.2024
In just seven trading days, the “Magnificent Seven” of the US sharemarket lost just over $US1 trillion ($1.7 trillion) of their market value within an overall market down almost 4.5 per cent.
The key question for investors is whether this is just a correction in what has been quite an ebullient market – or something more threatening.
The “Magnificent Seven” of the US sharemarket have lost more than $1.7 trillion in the past seven days.Credit:........
© The Sydney Morning Herald
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