The Magnificent 7: Google, Microsoft, Apple, and 4 Others Command 30% of the S&P 500

The collective performance of the renowned “Magnificent Seven,” comprising Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Tesla, and Meta Platforms, has witnessed over a 106% surge in 2023. Meanwhile, the overall S&P 500 gained 21% during the same period. This is according to data analysis from Stocklytics.com.

This surge has outpaced the remaining 493 companies in the S&P 500, which saw more modest gains of 12%. Consequently, the Magnificent Seven now constitutes approximately 30% of the S&P 500’s total market value, approaching historically high levels for such a small group of stocks.

What are the Magnificent Seven?

Earlier this year, Bank of America’s chief investment strategist, Michael Hartnett, coined the term ‘Magnificent Seven’ as a homage to the 1960 Western film featuring Yul Brynner and Steve McQueen.

Leading the charge, Microsoft surged by 64%, Apple added 52%, and Nvidia’s shares more than doubled, propelling its market value above $1 trillion. However, a mere 23% of S&P 500 stocks are within 10% of their record highs despite the index being just 1.6% away from its January 2022 peak.

The influence of the Magnificent Seven extends beyond price performance; they significantly contribute to the market’s overall earnings growth. While S&P 500 companies are expected to see a modest 0.7% earnings increase this year, excluding the Magnificent Seven would result in an anticipated 4% decline.

Impact of the Magnificent Seven on This Year’s Stock Markets

In the initial half of 2023, apprehensions regarding the economy, labeled by Michael Hartnett as “macro ambiguity,” loomed over the stock market, affecting numerous companies. 

Aggressive interest rate hikes by the Federal Reserve heightened the cost of borrowing. This prompted Wall Street to avoid banks and other financial services firms. The rise in mortgage rates also diminished the appeal for real estate investment trusts (REITs).

Despite not being entirely impervious to an environment with elevated interest rates, the Magnificent Seven are in a relatively advantageous position compared to other companies. 

These seven stocks are perceived as having substantial profit potential and boast robust balance sheets, each holding tens of billions of dollars in cash.

Will this Continue?

Analysts differ in their predictions for tech stocks’ dominance in the coming year. While some anticipate outperformance in sectors such as industrials, materials, and transportation, others advise increasing positions in selected small-caps and emerging markets.

Despite the resurgence of big tech, certain stocks, including Amazon, Alphabet, Meta, and Tesla, are still trading below their 2021 year-end levels. Investor caution is reflected in the data, showing a net addition of $4.1 billion to tech-focused equity funds through November—half of the $7.9 billion pulled in the same period in 2022.

Higher interest rates have played a role in the tech stocks’ resurgence, enabling them to earn yields on cash for the first time in decades. This development has strengthened their balance sheets and bolstered profitability. While tech stocks may appear expensive compared to the broader market, proponents argue that their reliability as growers makes them a worthwhile investment, particularly in a slowing economic environment.