What Spooked the S&P 500? It Wasn’t the Trade War!

Lean Wei Ren.

Written on 21st March 2025

Published on 21st March 2025.

The U.S. stock market has been on edge lately, and the S&P 500 just dropped 10%! 😨 Investors are worried, but the real reasons behind the selloff might surprise you.

Two major factors are at play:

The obvious one: The White House keeps making big policy moves, especially on trade. Businesses are feeling the heat, and even usually quiet CEOs are speaking out.

The hidden one: The market has been riding on the backs of the Magnificent Seven—Apple, Microsoft, Nvidia, Amazon, Alphabet (Google), Meta (Facebook), and Tesla. These tech giants make up nearly a third of the S&P 500, and their success has powered the market for years. But what happens if they slow down?

The Market Drop: Big Tech Took the Biggest Hit

During the recent market dip:'

• Every Magnificent Seven stock fell—by a median of 14.4%!

• Their drop made up nearly half of the S&P 500’s losses.

• Meanwhile, 25% of other S&P 500 companies gained during this period.

If this were all about tariffs, we’d expect industrial and consumer stocks to be hit hardest. But they actually held up better! Instead, tech stocks—which should be safe from tariffs—took the biggest beating.

The Bigger Picture: A Slowdown, Not a Trade War

So, what’s really going on? The economy is slowing, and inflation is still above the Federal Reserve’s 2% target. The bond market has been warning about this for weeks.

The Magnificent Seven have been growing at crazy-fast rates for years. Even if they just slow down to normal growth, it would be a big deal for the market.

Here’s why that matters:

Since 2015, the Magnificent Seven have averaged 36% yearly growth, while the overall stock market has historically returned about 6% a year since 1928.

Without them, the S&P 500’s price return drops to just 5% a year since 2015.

Unlike past stock bubbles (think dot-com crash), these companies weren’t just hyped up—they actually made massive profits! But now, expectations for their future earnings are lower, so their stocks are sliding.

What Happens Next?

• If Big Tech keeps struggling, the S&P 500 could drop more—even if other stocks do well.

• If a trade war ramps up, smaller companies might suffer while tech giants stay strong.

One thing’s for sure:

When seven companies control the market, the S&P 500 doesn’t always reflect what’s really going on. Keep your eyes on the bigger picture! 👀

~ Beyond The World