The S&P 500 fell 0.19% yesterday but, interestingly, the “equal weight” S&P 500 (a notional index that values each stock equally) was marginally up. That’s because more investors are picking between winners and losers on the index—and many of the losers are the “Magnificent Seven” tech stocks, a cohort that includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
The market as a whole is up 0.48% year-to-date. Given that the year is only a few days old, that pace promises healthy gains ahead.
But only two of the Mag 7 stocks are in positive territory so far, Alphabet and Amazon. All the others are down. Some of them are down bad. Tesla has lost 4.73% so far, Apple is down 4.83%.
The collapse of the Mag 7 is important because in the last few years the valuation of those stocks has grown so big that they now form more than 30% of the value of the S&P as a whole. It created a situation where even if you bought an S&P 500 exchange-traded fund, with the intent of diversifying your investments across 500 companies, your results were mostly affected by the Mag 7.
To give you an idea of how worried analysts are about this concentration risk, Apollo Global Management chief economist Torsten Sløk recently published a note whose opening page looked like this:
But the dominance of the Mag 7 is likely to come to an end this year, many on Wall Street believe—if only because their valuations can’t exponentially go up forever.
Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett believes the market is undergoing a healthy rotation away from tech stocks and back into the non-tech components of the S&P.
“We see several drivers of healthy deconcentration of the current ‘top 10’ components persisting,” she said in a recent note. “First is relative earnings acceleration. Growth rates are apt to continue to decline for the ‘Magnificent Seven’ while those of ‘the 493’ improve. Second, stock-buyback activity among the tech giants is falling as operating cash flow increasingly goes to [AI-related] capex.”
The result is something that traders are pretty happy about because—as yesterday’s equal weight S&P performance shows—the other 493 stocks are still able to generate gains even if the Mag 7 are crumbling.
“On a [year-to-date] basis, the bull market in the S&P 500 is broadening, as we expected it might this year. The S&P 400 and S&P 600 are outperforming the S&P 500,” Ed Yardeni of Yardeni Research told clients this morning:
The Mag 7 has been in decline for two and a half months. “The Impressive-493 has outperformed the Magnificent-7 since last November. We expect this will continue in 2026, as last year’s LargeCap laggards catch up,” Yardeni said.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were down 0.44% this morning. The last session closed down 0.19%.
- STOXX Europe 600 was up 0.27% in early trading.
- The U.K.’s FTSE 100 was up 0.3% in early trading.
- Japan’s Nikkei 225 was up 1.48%.
- China’s CSI 300 was down 0.4%.
- The South Korea KOSPI was up 0.65%.
- India’s NIFTY 50 was down 0.26%.
- Bitcoin was at $95K.
