SPY, QQQ Draw Heavy Retail Activity After Market Marks Worst Quarterly Loss Since 2022

The threat of tariffs and the resultant deterioration in macroeconomic data weighed down heavily on the broader market in the first quarter, with much of the weakness hitting in the second half of the quarter.

The S&P 500 Index, a broader market gauge, ended the quarter down 4.6% and the tech-heavy Nasdaq Composite Index declined a steeper 10.4%. The tech sell-off was concentrated in the large-cap space, as evident from the steeper 15.7% plunge by the Roundhill Magnificent Seven ETF (MAGS). On the other hand, the iShares Russell 2000 ETF (IWM), which tracks the Russell 2000 Index of small-cap stocks, is down 10.5% for the quarter.

The 30-stock Dow Jones Industrial Average, aka, blue-chip index, posted a quarterly loss of 1.2%.

The S&P 500 Index and the Nasdaq Composite clocked the worst quarterly performances since the third quarter and second quarters of 2022, respectively, according to Dow Jones Data.

The three major averages are down 8.7%, 14.4% and 6.8%, respectively, from their all-time intraday closing highs of 6,147.43 (Feb.19), 20,204.58 (Dec. 16) and 45,073.63 (Dec. 4).

Mega-Cap Mayhem

The MAGS exchange-traded fund (ETF) tracks the performance of the seven mega-cap tech stocks namely:

• Alphabet, Inc. (GOOG) (GOOG) - down 18.2% year-to-date (YTD)
• Amazon, Inc. (AMZN) - down 13.3%
• Apple, Inc. (AAPL) - down 11.2%
• Meta Platforms, Inc. (META) - down 1.5%
• Microsoft Corp. (MSFT) - down 10.8%
• Nvidia Corp. (NVDA) - down 19.3%
• Tesla, Inc. (TSLA) - down 35.8%

 

Tesla, which cannot be strictly categorized as a tech stock, is in bear territory as the lukewarm performance of the flagship electric-vehicle business and CEO Elon Musk’s polarizing stance weigh down on investor sentiment.

The rest of the mega-caps, which led the bull run seen since October 2022, have been stymied by macro concerns. President Donald Trump’s tariffs on the North American neighbors and China, as well as the reciprocal tariffs on other countries that is set to go into effect on April 2, have triggered fears concerning a marked slowdown in growth, potentially precipitating into a recession, and a pick up in inflationary pressure.

The recent leading indicators have vouched for this fact.

Defensives Outperform

The macroeconomic and geopolitical uncertainties have weighed down heavily on risky bets and growth stocks, while defensives have performed relatively better. The YTD performances of the S&P 500 sector indices are as follows:

• S&P 500 Communication Sector - down 6.4% (this sector includes defensive telecom stocks)
• S&P 500 Consumer Discretionary - down 14%
• S&P 500 Consumer Staples - up 4.6%
• S&P 500 Energy - up 9.3%
• S&P 500 Financials - up 3.1%
• S&P Healthcare - up 6.1%
• S&P 500 Industrials - down 0.5%
• S&P 500 IT - down 12.8%
• S&P 500 Materials - up 2.3%
• S&P 500 Real Estate - up 2.7%
• S&P 500 Utilities - up 1.1%

 

The tech space, which was riding high on the AI wave, came crashing down amid fears of competitive threat posed by cheaper alternatives from China such as the large-language models of DeepSeek, and slow uptake of products and services in the event of a growth slowdown.

Retail Guarded

Sentiment among retailers on the Stocktwits platform remains cautious. The SPDR S&P 500 ETF Trust (SPY), an ETF that tracks the S&P 500 Index, elicited ‘neutral’ sentiment (45/100) among retailers, with the message volume on the SPY stream improving to ‘normal’ levels.

SPY sentiment and message volume as of 12:52 am, April 1 | source: Stocktwits

A  bullish watcher said the market will go up in the near term on the premise the tariff problem is overblown and is factored in by the market.

On the other hand, another user based his bearish opinion on chaotic economic conditions.

The Invesco QQQ Trust (QQQ), an exchange-traded fund that tracks the Nasdaq 100 Index witnessed ‘bullish’ (63/100) sentiment, accompanied by ‘normal’ message volume.

QQQ sentiment and message volume as of 12:52 am, April 1 | source: Stocktwits

The Outlook

Recession concerns linger as U.S. Treasury yields continue to decline despite inflation worries. Fund manager Louis Navellier said a big factor in play in the market is the artificial intelligence (AI)  narrative. He expects the earnings season to give investors new confidence regarding the near-term gains of AI spending.

"Mega Tech is not overly exposed to tariffs, nor recessions, it's more about valuation/growth rates, and the fact that they dominate the index weights and are vulnerable to broad-based selling,” the fund manager said. 

The SPY ETF ended Monday’s session up 0.67% at $559.39, while the QQQ ETF closed marginally lower at $468.92.

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