Meta’s stock joins Apple, Microsoft and Nvidia shares in correction territory as tech-stock boom fizzles

Read: Have AI stocks like Nvidia reached bubble territory? Here’s what history can tell us.

Only Amazon.com Inc.
AMZN,
-0.57%
and Alphabet Inc.
GOOG,
-1.80%

GOOGL,
-1.89%
shares remain in bull-market territory.

See also: U.S. stocks pare losses as rising bond yields weigh on ‘Magnificent 7’ stocks

The retreat in Meta shares looks like “somewhat of a mean reversion” given their strong run this year, according to Matt Stucky, senior portfolio manager for equities at Northwestern Mutual Wealth Management.

Even with recent declines, Meta’s stock is the second-best performer in the S&P 500 so far this year, up 137% during 2023.

“When the overall market pulls back, you start to see some of the winners mean-revert more aggressively,” Stucky told MarketWatch.

Apple entered correction Wednesday upon falling more than 10% from its July 31 peak of $196.45. The company sells mainly discretionary products, and right now “consumers are still being pinched” and thinking more carefully about where they spend their money, he noted.

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Additionally, the company does about 20% of its business in China, where recent economic signals have been concerning, he added.

The Magnificent Seven had been beneficiaries of three key investment trends for most of 2023, according to Stucky, as the market was upbeat about easing inflation, an end to interest-rate hikes and the potential of artificial intelligence.

Investors who became less worried “about the Fed continuing to hike rates into oblivion” wanted quality companies that were growing, protecting margins and delivering good shareholder returns, even if their stocks carried richer multiples, Stucky said. However, it’s a “normal function of markets to ebb and flow” when sentiment is elevated, as it was in July.

The declines in Big Tech names mirror weakness in the sector more broadly after a sharp run-up to start the year. As of late July, the Nasdaq-100
NDX
was trading 26% above its 200-day moving average — “a statistical extreme,” according to CFRA chief investment strategist Sam Stovall.

Tech stocks were “like an army that had gotten well ahead of its supply lines,” he told MarketWatch. In that scenario, an army “has to either retreat or let supplies catch up.”

The current quarter is the most challenging of the year, Stovall said, and August is one of the most challenging months. In addition, there is uneasiness on Wall Street as investors wait to see what the Federal Reserve will do with interest rates.

“There’s so much uncertainty as it relates to interest rates with yields on the 10-year note continually climbing,” Stovall said. “Investors are saying it’s time to take profits, and the greatest profits were seen in tech.”

There could be more room to fall for tech stocks on the whole, according to Stovall. While the S&P 500
SPX
may not drop 10% from its recent peak, the Nasdaq
COMP
could see a “fairly mild correction” as this period of seasonal weakness continues through the end of September.

Still, he sees some encouraging signs in a hawkish-leaning Fed, which could raise rates in September but make that hike the last for this cycle.

“That would set us up quite nicely for a typically favorable fourth quarter,” Stovall said.