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Big Tech got thrashed on Thursday with bellwethers like NVIDIA (NVDA - Free Report) down more than 5%, while the entire "Magnificent 7" group of stocks, which consists of Apple, Microsoft, Alphabet, Meta, Amazon, NVIDIA and Tesla, had its worst day in nearly a year, according to Yahoo Finance. The tech-heavy Nasdaq Composite slipped almost 2%.
Tesla (TSLA - Free Report) shares snapped an 11-day winning streak to decline more than 8% on its worst day since January after a Bloomberg report revealed that the EV maker Tesla may delay the launch of its “robotaxi.” Roundhill Magnificent Seven ETF (MAGS - Free Report) was off 4.5% on Jul 11.
Consumer Inflation on a Downhill Ride
Meanwhile, the Consumer Price Index (CPI) dipped 0.1% sequentially in June and increased just 3.0% year over year. The annual gain marked the slowest rise in consumer prices since early 2021. U.S. inflation, in fact, cooled for the third straight month.
This triggered talks that the Fed may cut rates sooner than expected. This week Federal Reserve Chairman Jerome Powell indicated that the favorable economic conditions may help the Fed to start enacting interest-rate cuts. Thursday's inflation print cemented bets on a cut by September, with around 90% of traders expecting such an outcome, according to CME FedWatch.
Rate-Sensitive Sector ETFs Gaining From 'Mag 7' Slump
As chances of rate cuts strengthened, investors started to bet big on rate-sensitive sectors like Real Estate, which can be marked as Vanguard Real Estate Index Fund ETF Shares (VNQ - Free Report) , and Utilities, as replicated by Utilities Select Sector SPDR Fund (XLU - Free Report) , following June's cooler-than-expected inflation print. Both VNQ and XLU were up 2.8% and 1.7%, respectively, on Jul 11. Housing ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) also surged as much as 6.3% on the day.
Investors should note that these sectors are rate-sensitive and perform better in a falling-rate environment. Moreover, these sectors are known for paying handsome yields, which is a key requirement in a low-rate environment.
Dow Jones: A Potential Gainer?
Investors should note that if the Fed cuts rates soon, the yield curve may steepen. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve earns more on lending and pays less on deposits, thereby leading to a wider spread. This expands net margins and increases banks’ profits (read: How Will Bank ETFs Perform in Light of Q2 Earnings?).
Now, the Dow Jones has about 23% exposure to the financials stocks and thus is expected to fare better ahead. Moreover, the Dow Jones has 13.70% exposure to Industrials stocks — another area that is expected to benefit from low rates. SPDR Dow Jones Industrial Average ETF Trust (DIA) added 0.09% on Jul 11.
What Lies Ahead for Magnificent 7?
Although Magnificent 7 suffered badly on Thursday, we expect the segment to recover in the coming days as a low-rate environment is beneficial for high-growth tech stocks too. While there is a debate if NVIDIA is an overvalued stock after recording 164% gains this year and trailing the 12-month P/E of 74.95X (versus the semiconductor industry P/E of 26.53X), not all members of Mag 7 are overvalued. They may see a stellar run ahead thanks to their artificial intelligence initiatives.
And we all know that the AI boom is here stay now. Hence, investors with a strong stomach for risks may buy the dip in Mag 7 with the Mag 7-heavy ETFs like MAGS and InvescoS&P 500 Top 50 ETF (XLG - Free Report) .
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ETFs That Gained on Mag 7's Worst Day in a Year
Big Tech got thrashed on Thursday with bellwethers like NVIDIA (NVDA - Free Report) down more than 5%, while the entire "Magnificent 7" group of stocks, which consists of Apple, Microsoft, Alphabet, Meta, Amazon, NVIDIA and Tesla, had its worst day in nearly a year, according to Yahoo Finance. The tech-heavy Nasdaq Composite slipped almost 2%.
Tesla (TSLA - Free Report) shares snapped an 11-day winning streak to decline more than 8% on its worst day since January after a Bloomberg report revealed that the EV maker Tesla may delay the launch of its “robotaxi.” Roundhill Magnificent Seven ETF (MAGS - Free Report) was off 4.5% on Jul 11.
Consumer Inflation on a Downhill Ride
Meanwhile, the Consumer Price Index (CPI) dipped 0.1% sequentially in June and increased just 3.0% year over year. The annual gain marked the slowest rise in consumer prices since early 2021. U.S. inflation, in fact, cooled for the third straight month.
This triggered talks that the Fed may cut rates sooner than expected. This week Federal Reserve Chairman Jerome Powell indicated that the favorable economic conditions may help the Fed to start enacting interest-rate cuts. Thursday's inflation print cemented bets on a cut by September, with around 90% of traders expecting such an outcome, according to CME FedWatch.
Rate-Sensitive Sector ETFs Gaining From 'Mag 7' Slump
As chances of rate cuts strengthened, investors started to bet big on rate-sensitive sectors like Real Estate, which can be marked as Vanguard Real Estate Index Fund ETF Shares (VNQ - Free Report) , and Utilities, as replicated by Utilities Select Sector SPDR Fund (XLU - Free Report) , following June's cooler-than-expected inflation print. Both VNQ and XLU were up 2.8% and 1.7%, respectively, on Jul 11. Housing ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) also surged as much as 6.3% on the day.
Investors should note that these sectors are rate-sensitive and perform better in a falling-rate environment. Moreover, these sectors are known for paying handsome yields, which is a key requirement in a low-rate environment.
Dow Jones: A Potential Gainer?
Investors should note that if the Fed cuts rates soon, the yield curve may steepen. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve earns more on lending and pays less on deposits, thereby leading to a wider spread. This expands net margins and increases banks’ profits (read: How Will Bank ETFs Perform in Light of Q2 Earnings?).
Now, the Dow Jones has about 23% exposure to the financials stocks and thus is expected to fare better ahead. Moreover, the Dow Jones has 13.70% exposure to Industrials stocks — another area that is expected to benefit from low rates. SPDR Dow Jones Industrial Average ETF Trust (DIA) added 0.09% on Jul 11.
What Lies Ahead for Magnificent 7?
Although Magnificent 7 suffered badly on Thursday, we expect the segment to recover in the coming days as a low-rate environment is beneficial for high-growth tech stocks too. While there is a debate if NVIDIA is an overvalued stock after recording 164% gains this year and trailing the 12-month P/E of 74.95X (versus the semiconductor industry P/E of 26.53X), not all members of Mag 7 are overvalued. They may see a stellar run ahead thanks to their artificial intelligence initiatives.
And we all know that the AI boom is here stay now. Hence, investors with a strong stomach for risks may buy the dip in Mag 7 with the Mag 7-heavy ETFs like MAGS and Invesco S&P 500 Top 50 ETF (XLG - Free Report) .