Stocks again dropped on Tuesday, dragged by chip-related shares. The S&P 500 fell 1.4%, while the tech-heavy Nasdaq Composite did so by 2.2%. The Dow Jones Industrial Average, in turn, fell 0.09%.
CNBC noted that not all stocks fell. Some tech companies not related to chipmaking like Microsoft and Amazon climbed, while defensive ones like Walmart, Procter & Gamble and Johnson & Johnson also gained.
Micron stood out among those leading the losses, falling 11%. Intel dropped 4% and Advanced Micro Devices 5%. "The AI beneficiaries are the sell-off, and I don't think they're expensive, but they're crowded," Andrew Slimmon, a senior portfolio manager at Morgan Stanley Investment Management, told CNBC.
Losses were widespread outside the U.S. too. South Korea's KOSPI index dropped 10% on Tuesday amid signals that the rally in the tech sector could have become overheated. It was the steepest drop in more than three months and came after a record on Monday.
Market giants Samsung and SK Hynix each fell more than 12%, triggering an index-wide trading halt in the afternoon, Reuters noted. The two companies make up for more than half of the index's market value.
Fundstrat's head of technical strategy, Mark Newton, told the same outlet in a separate interview that the recent pullback is an opportunity to buy the Magnificent 7, which consists of Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet and Tesla.
"Recent weakness in the Magnificent 7 stocks now looks to be an opportunity for investors." He cited continued bullish trends in U.S. equities and signs that the group's underperformance may be nearing an end.
Microsoft, Meta, Alphabet, and Amazon have all retreated to roughly two-month lows. But rather than viewing the declines as a warning sign, Newton believes investors should prepare for a reversal. "It's right to start looking for relative strength to reassert rather than chasing the weakness," Newton said.
A rebound among the Magnificent 7 could have implications well beyond the technology sector. Newton said stabilization in the group would be "an important positive for the broader market," particularly if accompanied by falling oil prices, lower Treasury yields, and a weaker U.S. dollar.
Despite their enormous size, the stocks have faced growing scrutiny in recent months, with Investors questioning whether the massive spending on artificial intelligence can continue generating the returns needed to justify the companies' lofty valuations.
