The ‘Magnificent Seven’ Make This Bull Market Different

Tim Clift

Chief Investment Officer

We’re running with the bulls again. It may be hard to believe given recent worries about the debt ceiling, Federal Reserve policy, lingering inflation, the overarching possibility of recession and more.

But despite it all, if you include reinvested dividendsA cash payment to investors who own stock in the company., the S&P 500 was up more than 20% from its October 2022 low as of Friday, June 2.

It would be easy to assume that this rising tide has lifted all ships, but that’s not so. The “concentrated markets” trend that we highlighted in our quarterly webinar is still in play. Let’s review what’s going on under the surface and some key takeaways for long-term investors.

The Magnificent Seven

You may have heard about the Magnificent Seven in recent weeks. It’s not a reference to the classic Western film (though we’ll touch on that in a moment) but instead to the seven stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. that have been behind a large percentage of the stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. markets’ gains this year.

The Magnificent Seven are not all in the tech sector, but those that aren’t are nonetheless tech-adjacent (their business is driven in large part by advances in hardware, software and data crunching). And recently, the rise of artificial intelligence has created a tailwind.

Collectively these stocks (Apple, Alphabet, Tesla, Amazon, Microsoft, Meta and Nvidia) have returned 50.3% since the market bottomed on Oct. 12, 2022, and they’ve returned 70.9% year to date through June 6. They are all included in the S&P 500 and account for a large portion of the index’s 21.1% and 12.4% returns over those respective periods.

By contrast, the S&P SmallCap 600, which includes none of the seven, has returned just 3.6% this year and 10.6% since the market’s October 2022 nadir.

This is a remarkable run of outperformance from a very narrow slice of the overall stock market. Our investment team does not have perfect hindsight, but our core portfolios have benefited from exposure to these stocks this year.

How Does the Story End?

The analyst who coined the phrase “the Magnificent Seven” tapped into a deeper narrative of changing fortunes (intentionally or not). In the 1960 film of the same name, four of the seven gunslingers hired to defend the village against bandits didn’t make it out alive. The three survivors regarded themselves as no better off for their troubles. Life may not imitate art in this case, but there are parallels.

As wealth managers, we know the cyclical nature of the stock market well—what’s in favor today could be on the losing end of economic, technological or geopolitical trends tomorrow. And we don’t have to look too far back to find a time when these seven stocks collectively underperformed the broader market by a large margin. Between December 2021 and the end of 2022, they fell 46.4% compared to the S&P 500’s 18.5% decline over the same period.

The takeaway? Point in time and point of view both have a lot to do with stock market narratives.

Unlike the gunslingers, who took on great riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. at high personal cost, our guiding investment principle is to manage risk to match our clients’ goals. We do this by diversifying across asset classes and market segments, keeping costs low, and taking a long-term approach to building wealth.