The current Wall Street sell-off has wiped out billions in market value, hammering tech giants, banks, and airlines while sending defensive stocks and overlooked companies higher.
The S&P 500, after reaching a record high on February 19, has since dropped more than 9%, with the Nasdaq Composite sinking 13%, according to data from CNBC.
The US economy is now facing growing uncertainty because of that, and so investors are scrambling to reposition.
Tech, airline, and bank stocks collapse as investors pull out
Tech stocks that dominated the market have been slammed in the Wall Street sell off. Nvidia, which rode the AI hype, has tumbled by over 20% as investors worry about China’s expanding AI sector after the rise of DeepSeek.
Tesla, which surged after President Donald Trump’s election victory, has crashed by 36%, erasing all of those gains as Elon Musk desperately tries to win back investors.
Palantir, once flying high on US government contracts, has lost 30% after peaking last month amid Wall Street sell-off. Among the “Magnificent Seven”, Microsoft has held up the best but is still down 8%, the data shows.
Airlines have also been hit hard, with Delta, American Airlines, and United Airlines all dropping by nearly 30% since the S&P 500 hit all-time highs back in December. Investors are reacting to warnings about lower demand and a possible slowdown in consumer spending.
Banks are feeling the pressure of the Wall Street sell-off too. Citigroup, Morgan Stanley, and Goldman Sachs are all down 20% as recession fears increase and traders worry about slower corporate growth. The market’s shift away from risk is leaving banks in a tough spot.
Goldman Sachs has cut its S&P 500 target, with David Kostin now expecting the index to rise 10% from current levels, instead of from 2024 levels.
In an investor note sent on Tuesday, Kostin explained to investors that the “Magnificent Seven” accounted for more than half of the total correction, but he also warned that the market’s problems extend far beyond those stocks.
Meanwhile, the Wall Street crash has also exposed how top-heavy the US market has become, as the equal-weighted S&P 500, which treats all stocks the same, is down by 6%, according to the CNBC data.
Investors are now betting on defensive stocks
But while others are tanking, defensive stocks are thriving, as American Water Works is up by 12%, and Merck & Co has climbed by 11%. US Steel and Nucor have also seen gains, benefiting from Trump’s latest trade threats, including a 50% tariff on Canadian steel imports.
Some tech stocks that were previously ignored are holding up. Cisco and IBM, which have been left out of the AI boom, are only down by 6% since February and have managed to stay in positive territory for the year, according to data gotten from Google Finance.
Small-cap stocks, which you’d expect to benefit from the tech sell-off as they have historically in the past and also surged after the election thanks to Trump’s promised tax cuts and deregulation to boost the economy, have instead crashed along with the Magnificent 7.
Unlike last August, when small-caps rallied after a tech sell-off, this time they’re sinking alongside everything else.
Also, the US stock market’s premium over European markets is shrinking. Years of outperformance made US stocks far more expensive than European ones, but the recent Wall Street drop has changed that.
The S&P 500’s forward price-earnings ratio has fallen from 26x to 21x, while European stocks have only dropped from 15x to 14x, proving that investors who once saw Wall Street as the safest bet are now rethinking their positions, according to a note from Goldman Sachs on Tuesday.
Consumer confidence has crashed, with February posting the biggest one-month drop since the pandemic, and though egg and gas prices have actually gone low, inflation concerns continue to haunt investors. Wall Street hedge funds like Citadel and Bridgewater are unwinding their positions.
Moreover, bond markets are now pricing in three to four 25bp rate cuts this year, showing that Wall Street expects weaker economic growth ahead.
While some analysts argue that a recession isn’t the “base case” yet, we’re pretty sure not everyone’s buying it. Trump himself admitted that he isn’t ruling out a recession for this year.
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