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(Bloomberg) -- The flight from risk taking place in US equities has been painful for the tech giants who were last year’s big winners, but it pales in comparison to the walloping being doled out in the more speculative fringes of the market.
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Take Reddit Inc., the social-media company whose shares more than quadrupled last year. It tumbled 20% on Monday, its worst day since going public last year. Retail favorites like Tesla Inc. and Palantir Inc. both sank more than 10%. Strategy Inc., which has turned into a proxy for Bitcoin, dropped 17% and Cathie Wood’s ARK Innovation exchange-traded fund declined 8.8%.
From artificial intelligence darlings to profitless technology companies, rising fears about a potential recession have sparked a flight from risk assets, hammering the momentum trade that just a few weeks ago was a money-printing machine for traders.
“There’s been a very big re-rating in growth expectations, and people are moving from risky low-quality stocks to high quality,” said Kevin Caron, senior portfolio manager at Washington Crossing Advisors. “At this point I find it hard to see how you get a floor.”
The turbulence underscores the dramatic reversal in the market’s understanding of the Trump administration, which had initially been expected to boost the economy with pro-growth policies. Trump’s election unleashed a wave of speculation on everything from cryptocurrencies to tech giants on bets that his administration would cut regulations and encourage investment.
Now, those wagers are being rapidly unwound as investors shift their attention to the way that some of the administration’s tactics, especially on tariffs, generate big uncertainty and could lead the country into a recession.
The threat of an economic downturn has weighed on the broader market, with the S&P 500 down nearly 9% from last month’s record high. But the brunt of the selloff has been borne by technology companies that had provided much of the fuel for the nearly two and a half-year-old bull market in US stocks. A Bloomberg index that tracks the Magnificent Seven stocks is down 17% since the S&P 500 closed at a record on Feb. 19.
The angst among traders was ramped up last week after President Trump warned that Americans may feel a “little disturbance” from his efforts to restructure the economy through tariffs, suggesting that the bleak economic signals, from rising unemployment to sticky inflation, might not be temporary.