The bears see Mag 7's control of S&P as “on the verge of collapse due to deteriorating payroll”: Bank of America

According to Bank of America (BofA), there is a possibility that the big impact of the seven megacap high-tech stocks on the S&P 500 (SP500) will collapse due to a significant deceleration in US economic activity.

The Nasdaq 100 (NDX) and other high-tech stock indices (COMP: IND) (QQQ) began to decline this month as investors' expectations of a maximum of 3 interest rate cuts this year were rekindled, technical factors were added, and they flowed into small cap stocks (RTY) and other sectors that tend to be overlooked. The Nasdaq 100 (NDX) fell nearly 4% in July.

Bank of America investment strategist Michael Hartnett said on Friday in his notes on the company's Flow Show that the bullies stated that “adjustments” are healthy, but the bears “are on the verge of collapse of Magnificent 7's “monopoly/oligopoly advantage” in the S&P 500 (SP500) (SPY) (VOO) due to worsening employment statistics. He shared the following graph showing a high concentration of +30% in the overall market index of Magnificent 7.

Mr. Hartnett sees that there are signs of an economic recession in the 2-year/10-year (US2Y) (US10Y) US bond yield curve steeping.

In a broader sense, he said, bears see falling commodity prices (CL1: COM) (HG1: COM) as a confirmation of the “sluggish” global economy shown by China's bond yields hitting record lows. Mr. Hartnett previously stated that there is a high possibility that US bonds will rise in the latter half of 2024 since there are signs that economic activity is shrinking.

This week, due to disappointing financial reports from Tesla (TSLA) and Alphabet (GOOGL) (GOOGL), which are constituent stocks of magnitude 7, questions have surfaced about the rise surrounding corporate AI investment that caused the S&P 500 (SP500) and NASDAQ Composite Index (COMP: IND) to rise rapidly this year.

Meanwhile, economists are monitoring the slowing pace of growth in the US labor market. The unemployment rate rose to 4.1% in June, the highest level since November 2021.

This month, the stock prices of Mag7 companies Amazon (AMZN), Alphabet (GOOG) (GOOGL), Apple (AAPL), Meta (META), Microsoft (MSFT), NVIDIA (NVDA), and Tesla (TSLA) were sold, which was a factor stopping the double-digit rise in NASDAQ 100 (NDX) since the beginning of the year. However, the index has maintained an increase of +23% over the past year.

According to Bank of America, market bulls have pointed out that adjustments are healthy, credit spreads are “stable,” and “large levels” have been maintained in various markets. Among the levels, the Nasdaq 100 Index (NDX) is above 18,700, and London copper prices are above $9,000 per ton.