The once invincible ‘Magnificent Seven’, a group of leading technology stocks, has begun to lose its sheen as four of its members, namely, Meta Platforms Inc. (Facebook’s parent company), Apple Inc., Microsoft Corp., and Nvidia Corp., have plunged into correction territory, witnessing a fall of at least 10% from their recent peaks. Despite this setback in the stock market, the corporate-bond market seems to maintain its faith in these tech giants, with Tesla Inc. being an exception as it holds no outstanding bonds due to its past convertible bonds having been transformed into equity.

The ‘Magnificent Seven’, which also includes Amazon.com Inc. and Google’s parent company, Alphabet Inc., is recognized for propelling the stock market’s gains in the first half of this year, fueled by the hype around artificial intelligence. However, the rally has hit a roadblock in recent weeks, with investors expressing concerns over the potential for U.S. interest-rate hikes, escalating Treasury yields, and uncertainties in China, particularly following property developer Evergrande’s application for U.S. bankruptcy protection. The recent move of Meta into correction territory, as reported by MarketWatch’s Emily Bary, has further compounded the group’s challenges, while Tesla has entered a bear market, indicating a decline of over 20% from its recent peak.

Correction in Tech Stock Giants: A Deeper Dive

The revered group of technology giants, often referred to as the "Magnificent Seven," seems to be losing its shine as four out of the seven companies have seen a correction, i.e., their stocks have plunged at least 10% from their recent peaks. The Magnificent Seven comprises Facebook’s parent company Meta Platforms Inc., Apple Inc., Microsoft Corp., Nvidia Corp., Amazon.com Inc., Alphabet Inc. (Google’s parent company), and Tesla Inc.

A Closer Look at the Tech Titans

While the stock market scenario looks grim for some, the corporate bond market appears to favor all the seven tech companies. However, Tesla stands out as an exception because it doesn’t have any outstanding bonds. Earlier, the electric car manufacturer had issued convertible bonds, which have now been converted into equity.

The seven tech giants are known for their significant contribution to the stock market’s gains in the first half of the year, propelled mainly by the buzz around artificial intelligence. However, the rally has hit a roadblock in recent weeks due to concerns around potential U.S. interest-rate hikes, soaring Treasury yields, and uncertainties in China, especially with Evergrande filing for U.S. bankruptcy protection recently.

Correction Territory and Bear Market

On Thursday, Meta joined Apple, Microsoft, and Nvidia in the correction territory. This implies that their stocks have fallen by at least 10% from their recent highs. Tesla, on the other hand, is in a bear market, having experienced a more than 20% drop from its recent peak.

Bond Performance and Trading Volumes

Data provided by BondCliQ Media Services reveal interesting insights into the bond performance of these companies. Microsoft, for instance, holds the most bonds, predominantly in the 30-year category, with over $50 billion in long-term debt, according to its 10-K filing with the Securities and Exchange Commission for 2023.

During the last 10 days, Microsoft saw almost $1.3 billion in customer buying from dealers and $960 million in customer sales to dealers. Moreover, each company in the group has seen increased net buying during the last 10 days, led by Microsoft.

Market Outlook

Apple’s stock entered correction on Wednesday, after falling more than 10% from its July 31 peak of $196.45. As Apple’s products are mainly discretionary, the current economic scenario where "consumers are still being pinched" and are becoming more cautious about their spending could be a potential reason for this, says Matt Stucky, Senior Portfolio Manager for Equities at Northwestern Mutual Wealth Management.

Takeaways

While the recent correction in the stocks of the Magnificent Seven might create a sense of panic among investors, it’s essential to understand that market fluctuations are inevitable. These tech giants have robust business models and product portfolios that have the potential to bounce back. However, investors need to keep an eye on the market trends and make informed decisions based on their risk appetite and investment goals. The bond market performance of these companies also provides a positive perspective in the current scenario.