All eyes are on the future of the tech trade during sell-off

The widespread sell-off in US equities (^DJI, ^IXIC, ^GSPC) continues just ahead of Monday's closing bell. The tech sector (XLK) has been a significant anchor dragging down tech-heavy indexes, but could this be a good thing for Big Tech's Magnificent Seven as investors were rotating out of tech before this broad selling activity even began?

Josh Schafer outlines the year-to-date trends that brought the tech trade to new heights, now contending with new challenges, and how closely Wall Street will be watching Nvidia's (NVDA) second quarter earnings results on Wednesday, August 28.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Luke Carberry Mogan.

Video transcript

Just over 20 minutes till markets close.

Let's get a check in on the markets with Yahoo Finance's very own, Joshua Shafer.

Hey, Josh.

Yes, you're seeing all three major averages still trading near their lows of the day coming up a little bit.

But I've sort of been asking strategists throughout the day today, just essentially what they make of the market action, what they feel like has been driving it and sort of where stocks go from here.

So the large take has been sort of something that you guys have obviously already talked about on the show.

Kind of the unwinding of this carry trade from Japan being what's what started weighing on markets.

You could really probably even go back to last Friday's jobs report saying that also was partially what is weighing on markets, right?

This economic data shift and how we're receiving data and sort of bad news becoming bad news.

What I thought was interesting that I heard from two different strategists though was essentially that when you look at what's being pulled down the most, it's the most crowded trades and that's kind of a call that we've been hearing for really over a month now and maybe six months, maybe you could say it's been a year that people have been circling that concentration though, right?

And saying at some point, this is going to unwind at some point, this is going to unwind.

And when we just think about this market action, you guys were just talking about NVIDIA down, I think over six or 7% at this point today, probably 30% in the last month.

Now, that's a call that people have been talking about and sort of the take away from the team at city was well, if the crowded trade was what brought everything up, that's what's gonna happen on the way down too.

And also getting to the point of maybe that's not a bad thing.

This is what people have been talking about, right?

We want that unwinding to happen.

So then you have more of a normal market and essentially the big tech earnings that we got last week didn't meet these really high expectations that we have.

So then you get a little bit of jitteriness.

A couple of technical things happen and then it all starts unwinding.

Well, and let's talk about the magnitude of that unwind because those always get a lot of attention.

So the magnificent seven in particular, what the market cap erasure today is that a record?

Is that what, what, what, what's the current?

I think it was close to a record.

We had a record last week.

Right.

So we're sort of, we're recreating their own records, I guess at some point when you start to look at that.

So that's been definitely an area to watch Julie.

And I think the interesting part of that is what's the near term catalyst to bring the magnificent seven trade back.

And I don't really know if you have, I mean, we gotta wait until the end of the month for NVIDIA.

We were talking about that earlier.

The timing of Nvidia's earnings is inconvenient.

I think for the rest of the market and for from catalyst purposes or it's a boon if they're gonna come out and, and beat as they have been.

And, and, and I also wonder though when you think about them, we talk about these big tech stocks in that group all the time, right?

Does it, how much will it matter if NVIDIA does the NVIDIA earnings thing again?

And the surprise and their earnings are going up?

Like, does that tell me that the other stocks are going to monetize their A I strategy?

It seems like we're getting to a point right now in market sentiment where investors are questioning that thesis more that just the broad A I trade is all one thing and if A I is hot, then everything in A I can go up.

I think one of the bigger takeaways I have from the last two weeks of action is just the A I trade in general is under more scrutiny and is being viewed differently depending on what company you are.

And so, I don't know, it would be interesting to see when NVIDIA does come out.

Can they sort of bring that narrative back or are we at a point where the, the A I trade is never just one trade anymore or selective?

We'll find out.

But we have to wait TBD.

Ok.

Thanks a lot, Josh.

Appreciate it.