We are currently in the market correction we anticipated. We have made small adjustments to our portfolio but are waiting before putting our cash fully to work. The Nasdaq 100 is now down more than 7% from the beginning of the year, and our technology portfolio is down just over a percent year-to-date. Our defensive strategy has performed well in early 2025. We are ready to increase risk once the situation stabilizes.... Show More
Market Corrects: Mag7 Leads the Decline as Volatility Rises
The S&P 500 index peaked on February 19 and has since declined for five consecutive days, falling below the critical 6,000-point threshold.
The decline has been led by the largest market-cap Mag7 stocks, whose equal-weighted index has already entered a correction (a decline of more than 10%). In particular, $TSLA (Tesla Motors, Inc.) has been in free fall recently. $BTC (Bitcoin) and other risk assets have also dropped sharply.
A concerning aspect of the decline is that the VIX index (implied volatility), which measures risk, has surged rapidly above 20. Sector performance indicates that defensive sectors have significantly outperformed cyclical sectors, both on a weekly and monthly basis. Among sub-sectors, semiconductors have been hit particularly hard. Several factors have increased the likelihood of a correction:
Weak macroeconomic data (inflation, employment, consumer confidence, retail sales)
A strengthening U.S. dollar
Weak forward guidance from Mag7 stocks during earnings season
Above-average stock valuations
Rising interest rates and reduced expectations for Fed rate cuts
The impact of Trump's trade war
During earnings season, Mag7 stocks delivered disappointing outlooks, though AI investments remained unchanged. In our view, this increases the risk that Mag7 earnings growth may weaken in 2025. If this happens, Mag7 companies may cut AI investments, which would negatively impact $NVDA (NVIDIA Corporation) outlook. Additionally, the market entry of DeepSeek highlights that AI development can be successful even with lower investment levels.
The market has now awakened to these risks, leading to renewed volatility in equities. So far, the decline at the index level has been relatively moderate, thanks to defensive stocks. The S&P 500 index is down 3.5% from its peak, while the Nasdaq 100 index has declined by 5.5% from its highs.
We anticipate that the decline will continue. The S&P 500 index may test its 200-day moving average, which is currently at 5,700 points. We are waiting before deploying excess cash at Disruptive.... Show More
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