This year’s stock market rally was led by a handful of technology stocks that have come to be known by Wall Street as the ‘Magnificent Seven’.
Apple, Amazon, Alphabet, NVIDIA, Meta, Microsoft and Tesla together are up around 75 percent since the beginning of the year. Americans holding them in their 401(k) savings accounts will have gotten a big boost as a result.
The 493 other companies in the S&P 500 – an index of America’s largest 500 companies – were up around 12 percent.
Overall, the S&P 500 was up almost 23 percent through December 18 – driven by those seven powerful technology companies. Many 401(k) accounts have at least some of the money invested in the benchmark index, and will have benefited from the rally over the year.
The spectacular growth of Magnificent Seven companies is widely attributed to the artificial intelligence craze this year and more recently the increased expectation that the Federal Reserve will begin reducing benchmark interest rates next year.
Nvdia, which manufactures computer chips, has enjoyed returns of nearly 250 percent this year and is the top performer in the S&P 500
As its market share has grown, the Magnificent Seven has come to represent a gigantic 33 percent of the S&P 500 index. The 493 other, non-Magnificent Seven, companies in the S&P 500 were only up around 12 percent
Technology stocks took a hit last year as the Federal Reserve started hiking interest rates, but this year started to rebounded fast.
That was onset in part by the release of OpenAI’s Chat GPT, which alerted both investors and the masses as to the power of AI and the ways in which it is likely to shape the future.
Nvdia, which manufactures computer chips, has enjoyed returns of nearly 250 percent this year and is the top performer in the S&P 500.
Investors remain confident that Nvidia will continue to be the dominant and leading supplier of computer chips for AI.
And Apple made up more than 8 percent of the S&P 500 as of December 18. In June it became the first $3 trillion company.
Concern is mounting that the index is weighing too heavily towards this small number of tech stocks.
As its market share has grown, the Magnificent Seven has come to represent a gigantic 33 percent of the S&P 500 index.
‘It’s a mind-blowing number to me when I think about an index that’s supposed to represent such a broad group of companies,’ Ann Miletti of Allspring Global Investments told the Wall Street Journal.
The term Magnificent Seven was coined by Bank of America analyst Michael Hartnett who used it earlier this year in a research note.
He told NPR that a predecessor to the Magnificent Seven is the Four Horseman, a term used by Wall Street in the 90s to describe Cisco, Dell, Intel and Microsoft, whose growth at the time was fueled by the rise of the internet.
‘You know how that turned out,’ he told NPR, referring to the bursting of the dot-com bubble.
Matt Orton, market strategist at Raymond James Investment Management, told the Journal that he expects the Magnificent Seven’s era of dominance may not last into the new year.
A trader is seen working on the floor at the New York Stock Exchange on November 16
‘We have moved to a little bit of a more normalized market environment where some of the stuff that hasn’t worked for a long time finally starts to work again,’ said Orton.
That could include other sectors like industrials, materials and transportation.
Other analysts predict the election will play an important role in markets next year. Saira Malik, chief investment officer at Nuveen, told Barron’s that stocks could drop but ultimately end next year on a high.
‘Historically, in presidential election years, [the S&P 500] has finished up three-quarters of the time – by an average of 7.5 percent,’ she said. ‘Typically, you get some volatility around the election and then a relief rally through the end of the year.’
By Daily Mail Online, December 18, 2023
