The collapsed stock palace is dragging down the Russell 2000 Index.
From WOLF STREET by Wolf Richter.
The S&P 500 finished at the same level it started at, and if you haven’t had access to the internet in the last five days, you would have missed all the drama that saw the Nikkei plunge 12% on Monday, signalling panic in U.S. markets but which quickly faded.
But that doesn’t erase all of Monday’s losses. The Russell 2000 small cap index is down 1.3% this week, while the Magnificent Seven (Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla) is down 0.9%. Meta had a strong week, up 6.1%. The Magnificent Six excluding Meta is down 1.5%, dragged down by Tesla and Nvidia.
S&P 500 IndexAfter all this drama, the stock finished the week little changed at 5,344. It’s down just 5.7% from its July 16 high but is up 12% this year.
Nasdaq Composite Index Cases fell just 0.2% for the week to 16,745, and are down 9.5% from the peak on July 10. Year-to-date, they are still up 11.6%.
But the Nasdaq is in trouble. Even a 4.1% drop would put it back to where it was when it crashed 36% in November 2021, during which it surged 81% to its all-time high. This was certainly an unhelpful drama. Treasuries and calm?
Russell 2000The index, which tracks the smallest 2,000 stocks in the Russell 3000 Index, has been handicapped by stocks that have crashed since February 2021, mostly highly anticipated IPO and SPAC names that were born out of the pandemic and are now packed like sardines onto the cheap floor of the pantheon of bust stocks.
There are many stocks whose share prices have plummeted to zero or near zero since the IPOs and SPAC mergers of the free-money era of 2020-2022. Many are valued in the billions or tens of billions of dollars, and there may be 1,000 that have crashed 80% or more to date, including some high-profile names like Blackstone’s epic pump-and-dump bumble (-94%) and the winemaker PE firm roll-up SPAC currently being liquidated in bankruptcy court (-100%).
Many of these stocks were in the Russell 2000 Index, but their sharp declines have left the Russell 2000 in dire straits even as many other small caps have performed well. Meanwhile, the S&P 500 continued to soar from high to high until July 16th, because most of the stocks that fell so quickly were not in the S&P 500.
These stocks are the ones that people lost shirts, pants, socks, etc., as they came out of what we call “consensus hallucination.” And these stocks are weighing down the Russell 2000.
The Russell 2000 Index is back to where it was in early January 2021, three and a half years ago. It fell 1.3% this week. This much-touted “rotation” into small caps lasted only a few days.
On the other side is Mag7. Despite a great week for Meta (+6.1%), the Mag 7 bounce did not make it back to Friday’s close. But it was a good effort. Thanks Meta. [META].
Since hitting its all-time high on July 10, market capitalization has fallen a combined $2.34 trillion, or 15%, and is now back to where it began on May 24. That a $2.34 trillion drop in just seven stocks represents only a few months of setback is astonishing in itself, and speaks to the crazy times fueled entirely by the AI bubble.
NVIDIA [NVDA]Once the world’s most valuable company, its shares have fallen 22.3% since their all-time high on July 10, wiping out $741 billion in market capitalization, making for an interesting chart.
If Nvidia says demand is a bit “volatile,” that’s great. Cisco CEO John Chambers was the first company to ride the dot-com bubble to a $1 trillion market cap, but he also helped burst it. Cisco’s market cap is now just $183 billion.
Tesla [TSLA] It’s on the other side of the Mag 7, with zero gains since December 2020. From its peak in November 2021, Tesla has plummeted 51.7%, down 3.7% this week, making the small bounce of the past few days all but invisible.
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