Tech Giants Hover on Cusp of a Correction as War Heats Up
A swoon in US stocks has left technology giants on the brink of a correction as the war in Iran drives up oil prices and sparked inflation worries.
Bloomberg’s gauge of Magnificent Seven companies — which includes titans like Nvidia Corp., Apple Inc. and Tesla Inc. — closed lower and is close to being down 10% from its October peak. The group briefly tumbled into a correction earlier this month, but has yet to close below that level. The declines weighed on the Nasdaq 100 Index, pushing it down .
“The Magnificent Seven have had multiple episodes over the past few years where their valuations/price levels get ahead of fundamentals and then they spend months working off the exuberance,” said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute. “We have been in one of these periods since last October, and seem to be close to the end.”
The S&P 500 Index fell , extending declines for a third-straight session. Brent crude jumped to $. As a result of rising oil prices, bond traders are no longer pricing in an interest-rate cut from the Federal Reserve this year.
Iran’s Supreme Leader Mojtaba Khamenei and President Donald Trump both struck defiant tones as the war entered its 13th day. Khamenei said the critical Strait of Hormuz should remain closed and that Tehran would open other fronts in the war should attacks against the country persist. Trump, meanwhile, said stopping Iran from having nuclear weapons and threatening the Middle East was of “greater interest and importance” to him than the cost of oil.
Khamenei’s message “is a substantial headwind for an investor community that had hoped the battle would end promptly,” José Torres, senior economist at Interactive Brokers said. “The negative impacts on corporate margins, inflation expectations, rate-cut prospects and yields are sparking market volatility, leaving participants with few places to hide.”
Investor confidence the conflict and its impact on stocks will be fleeting is fading, with crude prices suggesting the situation will “drag on for some time,” according to BTIG’s Jonathan Krinsky. Eroding market breadth and sinking financial stocks are “too much to ignore,” Krinsky wrote in a note.
“There are few signs that either side wants to back down,” said Dec Mullarkey, managing director at SLC Management. He expects oil to hit all-time highs if shipping has not resumed by the end of March. “Developments over the next few weeks seem pivotal for the prospects of much higher energy prices and ultimately food prices as farmer planting season begins.”
