Last weekend, following the close of U.S. equities, all seven major stocks saw their year-to-date gains completely erased. According to Yahoo Finance data, Tesla fell 26.4% year-to-date, Microsoft dropped 15%, Meta declined 15.2%, NVIDIA fell 10%, Amazon slid 9.5%, Google dropped 9%, and Apple decreased 2%. From a broader market perspective, the S&P 500 has now posted five consecutive weekly declines, reaching its lowest level in seven months and down 5.1% for the year. The Dow Jones Industrial Average also entered correction territory on the day, marking the longest consecutive losing streak since 2022.
NVIDIA rose 239% in 2023 but is now down 10% this year. While this figure may seem moderate, if you bought at the October 2025 peak, you’re currently down 21.2%. Meta rose 194% in 2023 and is now down 15.2% from its high. The faith built over three years of a bull market has been gradually eroded in just three months.
Earnings for 2024 and 2025 have already slowed, declining from 107% to 64% to 23%. Growth has decelerated, but valuations haven’t adjusted downward. When the music stops, the risk premium ignored over the past three years returns all at once.
Interest rate hike expectations reversed: from single digits to 52% in just three months
The stock price decline is merely a result. What truly reversed is the interest rate expectation.
According to CME FedWatch data, in early January 2026, the market was still pricing in rate cuts, with less than a 3% probability of a rate hike within the year. The consensus at the end of 2025 was that the Fed would continue cutting rates in 2026.
The shift began on February 28. The "Operation Epic Fury" campaign escalated tensions in the Strait of Hormuz, a vital chokepoint through which 20% of global oil transportation passes, directly threatening its security. Brent crude closed at $112.57 on March 27, up 45% for the year. Rising oil prices have fueled inflation expectations, which in turn have directly reshaped interest rate pricing.
On March 27, the CME futures market priced the probability of an interest rate hike this year above 50% for the first time, reaching 52%. This marked the first time since early 2023 that market expectations shifted from rate cut expectations to rate hike expectations. According to data from the Atlanta Fed’s Market Probability Tracker, the probability of a 25-basis-point hike has reached 19.8%.
From nearly zero to over half, in less than three months. At the beginning of the year, the discussion was about how many rate cuts to make; now, the debate is whether to raise rates at all.
Microsoft fell the most, not Tesla.
Intuition might tell you that Tesla, among the Mag 7, has suffered the biggest decline—it’s the most volatile and the most controversial. But the data reveals a different reality.
According to combined data from Techi.com and Motley Fool, Microsoft has declined 35.7% from its July 2025 high of approximately $534, the largest drop from its all-time high among the Mag 7. Tesla ranks second with a 26.4% decline, and NVIDIA ranks third with a 21.2% decline.
But looking at the Forward P/E column on the right, the story is more complex. Tesla’s forward P/E is 145x, while Microsoft’s is only 24x. Microsoft fell more because market expectations for it are more rigid. When the broader environment worsens, the “certainty premium” contracts most sharply.
Apple was the most resilient among the seven, down only 5% from its high. But a forward P/E of 29 means this "safety" comes at a premium.
$650 billion in AI capital expenditures: Spending money isn't the issue—the expected returns are.
The Magnificent Seven issued an unprecedented check to themselves in 2026.
Based on company guidance for Q4 2025 and Bloomberg aggregated data, Amazon, Google, Microsoft, and Meta have collectively budgeted approximately $650 billion for AI capital expenditures in 2026, representing a 67% increase from $381 billion in 2025. Each company’s budget this year is nearly equal to or exceeds the total of the past three years combined.
Amazon, with the highest capital expenditure at $200 billion, and Google, at $180 billion, each declined by only 9.5% and 9% this year. In contrast, Microsoft, with lower capex at $145 billion, and Meta, at $1.25 billion, declined by 15% and 15.2%, respectively. The companies spending the most saw the smallest drops.
The market doesn't punish absolute investment scale—it punishes visibility of returns. Amazon’s AI investments directly serve AWS, a cash-flow engine; Google’s investments monetize clearly through search advertising. But where Microsoft and Meta’s AI spending will yield results remains uncertain—Copilot’s enterprise adoption and the strategic shift from metaverse to AI agents have yet to translate into measurable numbers. The rate-hiking cycle won’t wait for stories to unfold.
Funds are already voting with their feet
According to State Street Global Advisors’ monthly fund flow data, ETFs in cyclical sectors such as energy, materials, and industrials have seen net inflows of $19 billion year-to-date in 2026, accounting for 65% of total ETF inflows across all sectors—significantly higher than their 47% market weight. According to Morningstar data, natural resources funds recorded $7.5 billion in inflows in January, setting a monthly record for the sector.
According to ETF Trends data, cyclical sectors have averaged a +20% gain year-to-date, while technology sectors are down -6%, and the S&P 500 as a whole is up only +0.5%. The defense ETF (SHLD) saw over $1 billion in net inflows in January alone and is up +20% year-to-date. The technology sector has not experienced complete outflows, with $6 billion still flowing in during February, but its returns have significantly lagged behind those of cyclical sectors.
Once interest rate expectations flip, $650 billion in AI spending becomes the most prominent line on the balance sheet. Institutional funds are already shifting toward energy and defense.
EY-Parthenon’s chief economist, Gregory Daco, has labeled the current situation a “multidimensional disruption,” assigning a 40% probability of recession in the U.S. Goldman Sachs estimates 30%, while Moody’s chief economist, Mark Zandi, puts the figure close to 50%.
Three years of surge, three months of reversal—$650 billion hangs suspended in mid-air amid an interest rate hiking cycle. The $2 trillion market cap evaporated by the MAG 7 wasn’t the result of a single day’s panic—is the market repricing an already-ended cycle?