I spent a fair amount of time in recent days editorializing around the burgeoning tech “selloff” on Wall Street.

Note the scare quotes. “Selloff” is a highly relative term.

The Nasdaq 100 did have its worst week in months and one of its worst weeks of 2024, but a 4% pullback hardly counts as a proper “selloff,” particularly in the context of a monumental rally that saw the index climb ~45% since the October lows.

As the simple figure shows, meaningful weekly declines are a rarity this year. Even the four-week pullback from late-March to mid-April only saw the gauge down 7% at the local lows.

So, is this the start of something nefarious or an opportunity to get a slight discount on the best companies in the world ahead of earnings?

Spoiler alert: Nobody knows. Last week’s slide was attributable to adverse geopolitical headlines (reports of new export restrictions aimed at curtailing Xi Jinping’s access to advanced semiconductor technology) and the knock-on effect from the historic squeeze in small-caps triggered by the June CPI report.

Big-tech and consensus AI longs held up ok during the first few sessions of the small-cap surge, but exploding shorts eventually “metastasized” into what looked like the beginnings of a broader de-grossing or a momentum shock, Nomura’s Charlie McElligott said.

Do note: “Long Magnificent 7” captured 71% of the vote for the “most crowded trade” title in the July installment of BofA’s monthly fund manager poll.

As the figure shows, that was the second-largest share for any most crowded trade in the history of the survey.

July was the 16th straight month during which “Long Magnificent 7” topped the “most crowded” list.

As regular readers are acutely aware, I’m pathologically averse to clichés, but “make or break” is probably apt when it comes to describing big-tech earnings in the context of the nascent selloff in the mega-caps.

As one strategist quoted by Bloomberg for a July 19 piece put it, “If these companies can’t generate meaningful profits and revenue from AI, then the stocks go back to where they were a year ago.”

It’s with the usual caveat that I quote SocGen’s Albert Edwards, who this week fretted about a prospective tech “crash”: Edwards is a permabear’s permabear. And whether he realizes it or not (I think he does, otherwise I wouldn’t put it quite this way), a lot of his musings are tongue-in-cheek.

But I don’t think Albert was joking this week when he suggested that “a simple decline in EPS optimism” could materially undermine some of the high-fliers.

The figure above, from Edwards, shows revisions rolling over for big-tech.

“The ebb and flow of analyst optimism on earnings closely correlates with the short-term performance of tech, so the recent downturn in Nasdaq optimism reverses a key tailwind for the sector,” Albert said.

Simply put: The biggest risk to equities is a “bad” outlook from any two of these names: Alphabet, Amazon, Meta, Microsoft or Nvidia.

Put differently, the clearest (and maybe the only) path to a meaningful, sustained pullback for US equities is a material miss on the current-quarter, top-line guide from two (and you probably do need two, unless the one is Nvidia) of those companies.

Alphabet reports next week, Amazon, Apple, Meta and Microsoft the week after, and Nvidia on August 28.