The remarkable ascent of the Magnificent Seven stocks has sparked concerns regarding their sky-high valuation and the potential risk of overconcentration in today's stock market.
A Powerful Presence
Collectively, these seven behemoths—Amazon, Apple, Alphabet, Microsoft, Meta Platforms, Tesla, and Nvidia—command an astonishing market capitalization of nearly $12 trillion. This accounts for a staggering 28% of the S&P 500 and almost 23% of the entire U.S. stock market.
To put this immense dominance into perspective, Torsten Slok, chief economist at Apollo Global Management, points out that the combined market cap of these seven stocks is four times that of the entire Russell 2000 index. In fact, their collective size surpasses the stock market of any individual country, except for the United States.
Magnitudes of Scale
Affirming their colossal presence, the value of all stocks traded on China's Shanghai and Shenzhen exchanges amounts to approximately $8 trillion—merely two-thirds the size of the Magnificent Seven.
Intriguingly, these seven stocks are equivalent in size to the entire stock markets of the United Kingdom, Canada, and Japan combined. To exemplify the sheer scale, either Apple or Microsoft alone constitutes an equivalent market cap to Canada's entire stock market.
Last year witnessed the Magnificent Seven stocks emerge as prominent winners, primarily due to the newfound enthusiasm among investors for generative AI technology.
Although a few members encountered a slight dip at the start of the new year, some have already rebounded. Nvidia has enjoyed a year-to-date gain of 5.4%, Meta Platforms rose by 1.4%, and Alphabet experienced a modest 0.1% increase. However, the remaining stocks in the group have seen a decline this year.
With their unprecedented market dominance and the fervor surrounding generative AI, these stocks continue to be a focal point in the ever-evolving landscape of the stock market.
The Changing Landscape of the S&P 500
The S&P 500 recorded an impressive 24% increase last year, but the driving force behind these gains came from just seven companies. However, experts predict that the year 2024 may mark a shift in dominance, with smaller stocks taking the lead.
According to a recent note by Charles Schwab strategist Kevin Gordon, nearly half of the companies within the index have yet to recover from the market's record high in January 2022. Despite the media focus on the Magnificent Seven, their prominence lies primarily in their size rather than their performance. Gordon points out that many other companies outperformed this group in the past year, suggesting that history could repeat itself in the future.
Though some argue that it is premature to dismiss the tech giants, deVere Group CEO Nigel Green believes that they will maintain their significance for investors worldwide. Green highlights their established market positions, commitment to innovation, resilience during economic downturns, and alignment with global megatrends as reasons for their continued success. He warns against underestimating the Magnificent Seven, advocating for a more patient approach despite a rocky start to the year.
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