The release of several earnings reports on October 25, 2023, has caused a significant decline in the value of the top seven blue-chip tech firms, also known as the “magnificent seven.” These tech stocks, including Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia, and Tesla, make up a quarter of the value of the S&P 500 index. In total, more than $280 billion has been wiped from their market cap, sparking concerns of a looming tech recession.
One of the hardest-hit companies was Google’s parent company, Alphabet. Its share price fell over 9%, resulting in a loss of $180 billion in market cap. This was noted as Google’s worst-performing day since the COVID-19 pandemic began in March 2020. Other companies such as Amazon, Nvidia, and Meta also experienced declines in their share prices, of 5.5%, 4.3%, and 4.2%, respectively. Apple and Tesla, on the other hand, saw less severe drops of 1.35% and 1.9%. Microsoft was the only company out of the seven to see an increase in its share price, rising 3.1% after reporting better-than-expected growth in its Azure business.
The widespread selloff of tech stocks resulted in a 5-month low for the S&P 500. This has raised concerns about a potential tech recession, with tech stock investors possibly beginning to price-in this possibility. Buyers are becoming more hesitant as headwinds accumulate in the tech sector. This fear has also been reflected in Google search trends, with searches for “stock market crash” increasing by 233% in the past week.
While the tech stocks faced a decline, the cryptocurrency market experienced an upward trend. This was driven by optimism over possible spot Bitcoin exchange-trade fund approvals in the United States. The cryptocurrency market cap increased by 16.3% to reach $1.3 trillion over the last week. Bitcoin, Ether, BNB, and XRP saw significant increases of 23.3%, 16.7%, 8%, and 15.2% respectively over the same period.
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However, it is important to note that the cryptocurrency market is not immune to tough macroeconomic conditions. When the real gross domestic product of the United States decreased during the first two quarters of 2022, the cryptocurrency market cap fell by 61.7% from $2.37 trillion to $907 billion. This highlights the potential volatility and sensitivity of the crypto market to broader economic trends.
Some analysts speculate whether Bitcoin will further decouple from tech stocks and the S&P 500. Past research suggests that Bitcoin tends to trade like a “tech stock” over the long term due to its extreme volatility. However, it can serve as a viable hedge against the U.S. dollar, as it is negatively correlated to it.
Recent investor movements indicate a possible “flight to safety” towards Bitcoin, particularly as several banking stocks have experienced significant declines. This movement has led some observers to believe that Bitcoin is becoming a preferred safe haven asset in times of market uncertainty.
In conclusion, the decline in the value of the top seven tech stocks has raised concerns about a potential tech recession. The cryptocurrency market, on the other hand, has experienced an upward trend, driven by optimism over possible Bitcoin ETF approvals. However, the crypto market is not immune to tough macroeconomic conditions. The dynamics between tech stocks, the broader market, and cryptocurrencies will continue to be closely watched by investors and analysts.
