Last weekend, US stocks closed, with seven stocks erasing all gains for the year, with none spared. According to Yahoo Finance data, Tesla is down 26.4% for the year, Microsoft is down 15%, Meta is down 15.2%, Nvidia is down 10%, Amazon is down 9.5%, Google is down 9%, and Apple is down 2%. From a market perspective, the S&P 500 has now closed lower for five consecutive weeks, hitting a seven-month low, with an accumulated decline of 5.1% for the year. The Dow Jones Industrial Average entered the correction zone that day. This marks the longest consecutive decline since 2022.

Nvidia has risen 239% in 2023, but is now down 10% for the year. This number seems mild, but if you bought at the high in October 2025, you are actually down 21.2%. Meta has risen 194% in 2023 and is now down 15.2% from its peak. The faith accumulated during three years of a bull market has been gradually dismantled in three months.

Expected earnings for 2024 and 2025 are already slowing, from 107% to 64% to 23%. Growth has slowed, but valuations have not dropped accordingly. When the music stops, the risk premium that has been ignored for three years comes back all at once.

Interest Rate Expectation Reversal: From Single Digits to 52% in Just Three Months

The drop in stock prices is just the result. What has truly reversed is the rate expectations.

According to CME FedWatch data, at the beginning of January 2026, the market was still pricing in rate cuts, with the probability of a rate hike for the year being less than 3%. The consensus by the end of 2025 is that the Federal Reserve will continue to cut rates in 2026.

The turning point began on February 28. The "Operation Epic Fury" action led to escalation in the Strait of Hormuz, a chokepoint that carries 20% of the world's oil transport, facing direct threats. Brent crude oil closed at $112.57 on March 27, with a year-to-date increase of 45%. Oil prices drove inflation expectations, which in turn directly rewrote rate pricing.

On March 27, the CME futures market first priced the probability of a rate hike for the year to exceed 50%, reaching 52%. This was the first time since early 2023 that the market flipped from "rate cut expectations" to "rate hike expectations." According to the Atlanta Federal Reserve's Market Probability Tracker data, the probability of a 25 basis point hike had reached 19.8%.

From near zero to over half, in less than three months. At the beginning of the year, discussions were about how many rate cuts there would be; now the discussion is whether to hike rates or not.

Microsoft Drops the Most, Not Tesla

Your intuition might tell you that Tesla should be the one that dropped the most among the Magnificent 7. It has the largest volatility and most controversy. But the data presents a different reality.

According to data from Techi.com and Motley Fool, Microsoft has dropped 35.7% from its peak in July 2025 (around $534), the largest drop among the Magnificent 7 from their historical peaks. Tesla comes in second at 26.4%, and Nvidia is third at 21.2%.

However, looking at the right column for Forward P/E, the story gets more complex. Tesla's forward price-to-earnings ratio is 145 times, while Microsoft's is only 24 times. Microsoft has dropped more because the market prices its expectations more rigidly. When the overall environment worsens, the "certainty premium" contracts the most.

Apple is the most resilient of the seven, having only dropped 5% from its peak. However, a Forward P/E of 29 means this "safety" is not cheap.

$650 Billion AI Capital Expenditure: Burning Money is Not the Issue, Return Expectations are

The Magnificent 7 has issued an unprecedented check for 2026.

According to Q4 2025 earnings guidance from various companies and Bloomberg aggregated data, Amazon, Google, Microsoft, and Meta budget a total of about $650 billion for AI capital expenditures in 2026, an increase of about 67% from $381 billion in 2025. Each company's budget for this year is close to or exceeds the total of the past three years.

Amazon (with $200 billion) and Google (with $180 billion) have the largest capital expenditures, having only dropped 9.5% and 9% for the year, respectively. Conversely, Microsoft (with $145 billion) and Meta (with $125 billion), which have lower capital expenditures, dropped 15% and 15.2%. The ones spending the most have dropped the least.

The market punishes not the absolute scale of investment, but the visibility of the returns. Amazon's AI investments directly serve its cash flow engine AWS, while Google's investments have a clear monetization path through search advertising. Where Microsoft's and Meta's AI spending lands is still a guess for investors; the enterprise penetration rate of Copilot and the strategic shift from the metaverse to AI Agents have yet to be quantified. The rate hike cycle does not wait for the story to finish.

Funds Are Already Voting with Their Feet

According to State Street Global Advisors' monthly fund flow data, since 2026, net inflows into cyclical sectors such as energy, materials, and industrials ETFs have reached $19 billion, accounting for 65% of total inflows into all sector ETFs, well above the market weight of these sectors at 47%. According to Morningstar data, natural resource funds had inflows of $7.5 billion in January, setting a new monthly historical high for the sector.

According to ETF Trends data, the average year-to-date gain in cyclical sectors is +20%, while the technology sector has seen a -6% decline, and the S&P 500 overall is only +0.5%. The military ETF (SHLD) had over $1 billion net inflows in January alone, with a year-to-date gain of +20%. The technology sector is not completely losing blood, as it still had $6 billion inflows in February, but the returns lag far behind those of cyclical sectors.

Once the rate expectations reversed, the $650 billion AI expenditure became the most eye-catching figure on the balance sheet. Institutional funds have already moved, heading towards energy and defense.

EY-Parthenon's chief economist Gregory Daco referred to the current situation as "multidimensional disruption." He gives a probability of recession in the US at 40%. Goldman Sachs gives it at 30%, while Moody's chief economist Mark Zandi gives a number close to 50%.

Three years of excessive rises, three months of reversals, with $650 billion hanging in the air during the rate hike cycle. The $2 trillion market capitalization evaporated by the Magnificent 7 is not a panic of one day, but a market repricing for a cycle that has already ended.

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