FOR most of the past decade, a handful of high-flying technology companies have pushed the US stock market to record highs and become cornerstones of investment portfolios. But that’s collapsed this year.
Despite the S&P 500 Index clawing back into the green for 2025 after being whipsawed by President Donald Trump’s vacillating trade policies, tech giants like Apple, Alphabet, Amazon.com and Tesla are still down. The Bloomberg Magnificent 7 Index – which includes those companies as well as Meta Platforms, Microsoft and Nvidia – is underperforming the S&P 500, and if that holds through Dec 31, it would make this just the second year in the last 10 where that’s happened.
It’s a far cry from last year, when technology and telecommunications stocks both rose more than 35 per cent to lead the S&P 500’s 23 per cent gain. This year, typically lagging groups like industrials, utilities and financials are driving the stock market’s rebound. Whether Big Tech can re-establish its historical dominance in 2025 is the existential question facing investors as they start positioning for the back half of the year.
“The market is starting to look back more at individual stocks and companies and financial strength and innovation rather than letting the uncertainty around tariffs and where they may go really dominate the conversation,” said Rick Gardner, chief investment officer at RGA Investments. “And if you want to start talking about the US economy and you want to start talking about technology, that’s a really bright story.”
Gardner has been buying Big Tech stocks for his clients over the past month as the market has rebounded but they’ve languished.
He’s not alone. Signs are emerging that professional traders are increasingly wading back in after slashing equity positioning amid the economic uncertainty triggered by Trump’s global trade war. For example, hedge funds on Tuesday snapped up US equities at the fastest pace since Apr 9, the day the S&P 500 soared 9.5 per cent after Trump announced his tariff reprieve, according to Goldman Sachs’ prime brokerage desk. Technology stocks were the biggest beneficiaries of the buying.
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Not a good setup
The flipside of this optimism is the reality that tech stocks have had a massive run-up over the past few years, and with the economy in flux the risk is these shares could have much more room to fall. Betting on Big Tech a decade ago resulted in a gain of 2,179 per cent, compared with 181 per cent for the S&P 500, excluding dividends.
“I think we’re going to stall out here,” Lisa Shalett, Morgan Stanley’s chief investment officer, said on Friday (May 16) in an interview. “It’s hard to justify the numbers.”
Hedge fund manager Michael Burry, who’s famous for his 2008 bet against the housing market that was featured in The Big Short, bought put options, which profit from price declines, on Nvidia in the first quarter, according to the latest 13F regulatory filing by his firm, Scion Asset Management. However, the filing also added a note that the securities “may serve to hedge long positions which are not eligible to be reported”.
That said, the stock market’s big “what if” question is: If those Big Tech laggards start to outperform again, what does that mean for the S&P 500? The Magnificent Seven accounts for about a third of the benchmark’s market capitalisation. So if the mega-tech index, which is down 4.2 per cent for the year compared with a 1.3 per cent rise in the S&P 500, reverses course and takes the lead, how much does the S&P rally?
“I think all-time highs are possible,” Gardner said. “I would hate to be the one betting against our technology industry and innovation right now.”
He has a point, since the S&P 500 bottomed on April, tech stocks have led the way higher, with the sector rising 31 per cent compared with a 20 per cent gain for the entire index.
Of course, not all Big Tech stocks have been underperformers this year. Meta Platforms is up 9.4 per cent to lead the Magnificent Seven, while Microsoft has gained 7.8 per cent. Both have limited exposure to tariffs and posted better-than-expected earnings results. Nvidia, which reports on May 28, is roughly flat for 2025.
Betting on a tech rally comes with its own risks. Trump could resume his hard-line approach to tariffs when his 90-day pause ends in July. And the jury is still out on whether a demand shock from his levies will derail the US economic expansion and cause inflation to flare up again.
Economic fears
So far businesses have absorbed most of the costs from Trump’s tariffs, but Walmart said in its earnings report last week that consumers will start to see higher prices soon as it works through inventory and begins to pass on the expense of newer merchandise. Meanwhile, US consumer sentiment is at the second-lowest level on record and inflation expectations are at multi-decade highs, according to the monthly survey by the University of Michigan.
While the factors weighing on big tech laggards vary, the common challenge most of them face is exposure to China, which has been hit with the highest tariffs by the Trump administration.
For instance, the majority of Apple’s most important device, the iPhone, are still mostly made in China, and the country accounted for 17 per cent of its 2024 revenue, according to data compiled by Bloomberg. The company earlier this month reported a 2 per cent decline in China sales in its fiscal second quarter, short of analyst expectations. Apple has lost more than US$700 billion in market value since closing at a record on Dec 26 and is now worth less than Microsoft and Nvidia.
Alphabet, meanwhile, faces mounting concerns about risks to its Google search business from artificial intelligence chatbots like OpenAI’s ChatGPT. Searches on Apple’s Safari web browser fell for the first time in April, an Apple executive said in court testimony last week.
Still, hope for equity investors remains. In many ways the most encouraging sign for the stock market has been the S&P 500’s ability to rebound without big tech companies leading, according to George Maris, chief investment officer and global head of equities at Principal Asset Management.
“You don’t necessarily need the largest capitalisation securities to do great for a good, constructive market,” he said. “You probably have a healthier market, a healthier, more fundamentally-oriented market, if you have greater participation across the investment universe.” BLOOMBERG
