The S&P 500 index fell on Thursday and Friday as investors sold off technology stocks. The market believes that massive investments in artificial intelligence will become increasingly tough to justify in the context of intensifying competition and falling costs of services. The catalyst for the collapse was the news that the Chinese company Moonshot presented the Kimi K3 model, which is superior to its American counterparts. This immediately brought to mind the events of early 2025, when DeepSeek caused the broad stock market index to decline.
Investors’ long-standing romance with the Magnificent Seven is coming to an end. Since the beginning of the year, the group of companies has barely grown and is performing worse than both the S&P 500 and the weighted average index. The latter hit a record high during trading on July 16, indicating a broad market rally. It is no longer dependent on a few issuers. At the same time, Apple’s market value briefly surpassed NVIDIA’s market capitalization, making the iPhone maker the world’s most valuable company again.
Investors are looking for up-to-date stars and actively rotate their portfolios. Moreover, there is a massive withdrawal of funds from the shares of chipmakers that replaced the “Magnificent Seven”. This led to a 20% decline in the SOX semiconductor index from record highs, signaling a shift towards a bear market.
Investors are eagerly awaiting second-quarter corporate earnings that will confirm or dispel their concerns about the needy performance of technology companies. This week, through July 24, the focus will be on the results of General Motors, Alphabet, IBM, Tesla, Intel and Verizon.
The market focuses on finding up-to-date stars and responds little to other factors. For example, the resurgence of the conflict in the Middle East and the resulting boost in oil prices had no impact on the S&P 500 index. However, this may lead to prolonged inflation and an boost in the federal funds rate, which is a bearish factor for the stock market.
Investors also ignored a slowdown in consumer prices, which reduced the likelihood of further Fed rate increases and should, in theory, have helped the broader stock market index. Currently, however, the index is driven solely by sector rotation.
Summary: There is a rotation in the stock market: investors are moving away from the technology sector and looking for up-to-date growth engines amid competition in artificial intelligence and expectations ahead of earnings reports.
