Will the Magnificent Seven Repeat?

The unprecedented bull run of the largest companies in the S&P 500—commonly referred to as “The Magnificent Seven”—has led many investors to question whether we are on the brink of an adjustment. These juggernauts, consisting of Amazon, Microsoft, Nvidia, Apple, Google, Tesla, and Meta, significantly influenced market dynamics in 2023, powered largely by the explosion of artificial intelligence (AI) technologies.

The Magnificent Seven stocks account for nearly 1/3 of the market cap of the entire S&P 500 index. So, just like any other concentrated portfolio, they have an outsized impact on the performance of the S&P 500 index.  That was never more apparent than in 2023 when the S&P 500 returned 24% on a cap-weighted basis, but when weighing the return of all 500 stocks equally, it only netted an 11% return for the year.

So, the question investors are asking is, will the Magnificent Seven have a repeat Cinderella year, or will they pause while the rest of the market plays catch up?

We are seeing signs of a pause or shift.  Nvidia, Meta, Amazon, and Microsoft continue to rise, but Apple, Tesla, and Google have begun to falter.  Perhaps we are transitioning from the Magnificent Seven to the Fantastic Four?

On a year-to-date analysis, the momentum is diversifying, with industrials, health care, and financial stocks all gaining ground. Smaller and mid-sized companies are also beginning to see upticks, a sign that favors the investor. This broadening market participation is often the hallmark of a healthy market rally. While it is early in the year, and we still have a challenging election ahead, the expansion of the rally beyond the Magnificent Seven is a positive sign that we may be seeing a more sustainable rally.