Our pantheon of Imploded Stocks is weighing down the Russell 2000 index.
By Wolf Richter for WOLF STREET.
The S&P 500 ended where it had started out, and if you were away from the internet for those five days, you would have missed all the drama that had started out with the Nikkei plunging 12% on Monday, triggering a whiff of panic in the US markets that then quickly faded.
But not everything undid the Monday drop. For the week: The Russell 2000 small caps index -1.3%; at the other end, the Magnificent 7 (Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla) -0.9%. Meta had a great week, +6.1%. The Mag 6 without Meta: -1.5%, dragged lower by Tesla and Nvidia.
The S&P 500 Index, after all this drama, ended the week essentially unchanged at 5,344. Since the July 16 high, it has dropped just 5.7%, and it’s still up 12% year-to-date:
The Nasdaq Composite edged down just 0.2% for the week, to 16,745, which left it down 9.5% from the peak on July 10. Year-to-date, it’s still up 11.6%.
But the Nasdaq gives us a headache. If it drops by just 4.1%, it’s back where it had first been in November 2021, with a 36% plunge and a gigantic 81% rally to the all-time high in between. That sure was a lot of drama for nothing. T-bill and chill?
The Russell 2000, which tracks the 2000 smallest stocks in the Russell 3000, has been handicapped by the stocks that have collapsed since February 2021 – largely the super-hyped IPO and SPAC stocks that were born out of the pandemic and that are now packed like sardines into the cheap floor of our pantheon of Imploded Stocks.
Many of the stocks went from IPO or SPAC merger in the free-money era of 2020-2022 to zero or near zero by now. Many of them had valuations of billions of dollars or tens of billions of dollars, and there may be 1,000 of them by now that have collapsed by more than 80%, including such standouts as Blackstone’s epic pump-and-dump Bumble (-94%) or the winemaker PE-firm rollup SPAC that is now being liquidated in bankruptcy court (-100%).
Many of these stocks were in the Russell 2000, and their implosion – despite many other small caps doing well – is causing the Russell 2000 to be in such crappy shape, while the S&P 500 has soared and spiked from new high to new high – well until July 16 – because almost none of the imploded stocks ever made it into the S&P 500.
People have lost their shirts, trousers, and socks on these stocks when they emerged from Consensual Hallucination, as we’ve come to call the phenomenon. And those stocks have been weighing on the Russell 2000.
The Russell 2000 is now back where it had first been in early January 2021, so that’s 3.5 years ago. For the week, it was down 1.3%. That immensely hyped “rotation” into small stocks only lasted a few days:
At the other end, the Mag 7. Despite Meta’s great week (+6.1%), the bounce of the Mag 7 didn’t quite make it back to Friday’s close. But it was a good effort, thank you Meta [META].
Since the July 10 all-time high, the combined market capitalization has dropped by $2.34 trillion, or by 15%. They’re now back where they’d first been on May 24. That a $2.34 trillion plunge spread over just seven stocks sets them back only a few months is in itself astounding, and testimony of the crazy times, fueled entirely by the great AI bubble.
Nvidia [NVDA], briefly the most valuable company in the world, has now dropped by 22.3%, or by $741 billion in market cap, from the all-time high on July 10, and it is producing a fascinating chart.
Good lordy if Nvidia ever says anything about demand being somewhat “lumpy” – a term with which John Chambers, the CEO of Cisco – the first company that was supposed to reach a market cap of $1 trillion while riding up the dotcom bubble – had kicked off the dotcom bust. Cisco’s market cap is now just $183 billion.
Tesla [TSLA] is at the other end of the Mag 7, in terms of the gain since December 2020, which is zero. From the peak in November 2021, Tesla has plunged by 51.7%. For the week, the stock dropped 3.7%. The little bounce over the past few days is barely visible:
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