The “Magnificent Seven” now make up 35% of the S&P 500. The Magnificent Seven is a term to describe seven highly influential tech-focused companies and was coined by Michael Hartnett, a Bank of America Analyst in 2023. The Magnificent Seven are Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla. These mega-cap growth stocks continue to lead the market and are one of the main reasons the S&P 500 is up at record highs.
Looking at the S&P 500 by sector, the segments that contain one or more of the Magnificent Seven have outperformed the S&P 500 where the others have lagged behind. Amazon and Tesla are in the consumer discretionary sector, Alphabet and Meta Platforms are in the communications sector and Microsoft, Apple, and Nvidia are in the tech sector. Currently the S&P 500 has a P/E ratio of around 29 which could be seen as expensive by some investors but if the magnificent seven keep on meeting growth expectations there is an argument that the market should be trading at a higher multiple. On the other hand, if earnings fall and expectations come down there could easily be a correction in store for the S&P 500 due to it being heavily weighted towards the magnificent seven.
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