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Four of the so-called Magnificent Seven technology stocks that have powered the US market rally for the past nine months ended the week in correction territory, having fallen by more than 10 per cent from recent peaks. 

Another two — Microsoft and Amazon — are close to the double-digit falls that define a correction. Investors are looking ahead to further tech earnings updates next week amid worries about punchy valuations and the risks that returns from vast artificial intelligence-related spending may not live up to early hopes.

Nvidia and Tesla are each down 17 per cent from their recent peaks while Meta and Google parent Alphabet have fallen 14 per cent and 12 per cent. Apple is the best performer in the group, having lost just 7 per cent while Microsoft and Amazon have slid about 9 per cent each.

On Wednesday Alphabet sparked a wider market sell-off when, despite it reporting solid quarterly operating numbers, its shares fell more than 5 per cent on concerns about AI-related investments. Its $13bn quarterly capital expenditure was almost double the levels of a year ago.

“For a long time investors were really sold on the premise that AI investment in and of itself — spending money — is good,” said Max Gokhman, a senior vice-president at Franklin Templeton Investment Solutions. “What we’re seeing now is . . . investors saying, ‘Hold up a sec, what are the productivity gains here, when do you expect to see them?’”

Alphabet’s fall helped drag the tech-heavy Nasdaq Composite to its worst one-day decline in 18 months on Wednesday, down 3.6 per cent. The index ended the week down 2.1 per cent.

Microsoft, Meta, Apple and Amazon earnings next week may set up a fresh test of investor faith in the AI narrative that has been a crucial driver of market gains.

“Expectations are high and valuations for the Mag Seven aren’t cheap. We’re also closer to the point when we see some decelerations in earnings from them as a group — from the beneficiaries of AI in general,” said Josh Nelson, head of US equity at T Rowe Price. 

Investors this week also showed they were prepared to punish companies that missed expectations, with Tesla losing 12 per cent on Wednesday after slowing sales and its own AI spending shrank profits more than expected. And Ford shares tumbled 18 per cent on Thursday when its profits fell short, hurt by unexpectedly high warranty costs.

On average, companies that missed expectations had seen their shares drop 3.3 per cent in the days surrounding their earnings, according to data from FactSet, more than the five-year average of 2.3 per cent.

Companies that beat expectations saw on average no gains in their share price, FactSet reported.

“The trend of misses getting punished more than beats get rewarded is getting a little bit more significant,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “There is uncertainty and skittishness with regard to just how fast the market, driven by those names ran, without the commensurate improvement in their forward earnings prospects.”

Sonders also pointed to the fact that the earnings season under way had coincided with a “rotation” among investors taking profits in the biggest tech names in favour of backing smaller companies that were more likely to see big benefits if the Federal Reserve begins to cut interest rates in September.

This week, the Russell 2000 index of small-cap stocks added 3.5 per cent while the blue-chip S&P 500 fell 0.8 per cent.

Boar’s Head is recalling more than 200,000 pounds of deli meat that could be contaminated with listeria, the Food Safety and Inspection Service announced Friday.

The recall includes all Liverwurst products, as well as a variety of other meats listed in the FSIS announcement. The CDC has identified 34 cases of Listeria from deli meat across 13 states, including two people who died as of Thursday. The statement also said there had been 33 hospitalizations.

The CDC warns that the number of infections is likely higher, since some people may not be tested. It can also take three to four weeks for a sick individual to be linked to an outbreak.

Listeria is a foodborne bacterial illness, which affects about 1,600 people in the U.S. each year, including 260 deaths. While it can lead to serious complications for at-risk individuals, most recover with antibiotics. Its symptoms typically include fever, muscle aches and drowsiness,

The CDC says people who are pregnant, aged 65 or older, or have weakened immune systems are most at risk. It suggests that at-risk individuals heat any sliced deli meat to an internal temperature of 165°F.

The investigation from the CDC and FSIS is ongoing. This is not the first listeria outbreak of the summer, as more than 60 ice cream products were previously recalled during an outbreak in June.

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A federal grand jury in Los Angeles has charged prominent short seller Andrew Left with more than a dozen counts of fraud, alleging that he made profits of at least $16mn from “a long-running market manipulation scheme”, according to a statement from the Department of Justice.

The DoJ added: “Left knowingly exploited his ability to move stock prices by targeting stocks popular with retail investors and posting recommendations on social media to manipulate the market and make fast, easy money.”

The grand jury indictment charged him with 17 counts of securities fraud, one count of engaging in a securities fraud scheme and one count of making false statements to federal investigators.

The indictment alleged that Left, who has a high profile on social media, publicly claimed that companies’ share prices were too high or low, often with a recommended target price and “an explicit or implicit representation about Citron’s trading position”. This, the DoJ said, “created the false pretence that Left’s economic incentives aligned with his public recommendation”.

Left prepared to quickly close positions after publishing his comments, taking profits on price moves he had caused, according to the indictment.

It also accused Left of presenting himself as independent and concealing Citron’s links with a hedge fund by fabricating invoices and wiring payments through a third party.

If convicted, Left could face decades in prison. Each securities fraud count carries a maximum penalty of 20 years in prison, while the securities fraud scheme and false statements counts each carry a maximum prison term of 25 years and five years, respectively.

The US Securities and Exchange Commission has also filed a separate civil fraud case against Left and his firm Citron Research, claiming the founder made $20mn from a “multi-year scheme to defraud followers.” Left declined to comment on the DoJ and SEC charges.

“Andrew Left took advantage of his readers. He built their trust and induced them to trade on false pretences so that he could quickly reverse direction and profit from the price moves following his reports,” said Kate Zoladz, regional director of the SEC’s Los Angeles office. “We uncovered these alleged bait-and-switch tactics, which netted Left and his firm $20mn in ill-gotten profits, and we intend to hold Left and his firm accountable for their actions.”   

The practice of betting that a company’s share price will go down has long been controversial — opponents say it gives traders incentives to spread misinformation, while supporters argue that it improves price discovery and holds management accountable. Last year the SEC adopted new rules that require investors to disclose short positions more quickly and fully.

Left has been most vocal recently in his scepticism over GameStop, the ailing video games retailer. In May it raised $3bn selling new shares following a surge in its price driven by the reappearance of Roaring Kitty — whose real name is Keith Gill — who was instrumental in the 2021 meme stock mania that had sent its value rocketing.

Left told followers in mid-June that Citron had closed its short position on the stock not because he had changed his views but because of GameStop’s newly-strengthened balance sheet.

In 2016, Left received a five-year “cold shoulder” ban from regulators in Hong Kong — a landmark ruling for the city — temporarily barring him from its markets after he was found culpable of misconduct related to a research report he published on Chinese property developer China Evergrande.

Additional reporting by Stefania Palma in Washington and Brooke Masters in New York