A Closer Look at Magnificent Seven Stocks (2024)

The mega-cap leaders known as the “Magnificent Seven” put on a solid performance in 2023.

Will they continue to dominate market returns this year?

For the past five years, the Magnificent Seven has surpassed the gains of other stocks in the S&P 500® Index.

Source: Bloomberg, as of January 31, 2024.

The bar for the Magnificent Seven remains high, but 2024 began with a mix of optimism and skepticism.

Source: Bloomberg, as of January 31, 2024.

Index weight of top 7 companies in the S&P 500® has grown over time.

Source: Bloomberg, as of December 29, 2023.

The combined market cap of the seven at around $12.3 trillion is more than four times the size of the nearly $3 trillion market cap⁴ of the Russell 2000® Index, which consists of 2,000 small-cap stocks.

Although the Magnificent Seven’s impact is especially profound in the US, the group’s influence is worldwide. For 2023, the stocks contributed 39.8% to the total return of 22.8% of the MSCI ACWI Index⁵, the global equity index with large- and mid-cap representation across developed and emerging markets.

Further context on the size of the Magnificent Seven: The group has become larger than the equity markets of entire countries. Together, the Magnificent Seven has nearly the same market capitalization of the stock markets in the UK, Canada and Japan combined. Microsoft, with a market cap of nearly $3 trillion, on its own is worth more than the entire Canadian stock market (WCAU CAN Index).

Magnificent 7 stocks are now roughly equal to the size of Japan, Canada and the UK's stock markets.

Source: Bloomberg as of January 31, 2024. Chart shown in trillions of US dollars.

While the recent performance of the Magnificent Seven has thrust the group into the spotlight, we believe investors should be aware of the possible challenges that could come with investing in the Magnificent Seven.

In our view, it is important for investors to keep in mind that the mighty can fall. Think back not so long ago to 2022, when the Magnificent Seven (UBXXMAG7) finished the year down double digits along with other major indices.

The Magnificent Seven finished 2022 lower, as did major indices.

Source: Bloomberg, 12/31/2021-12/30/2022.

Also, there are potential investment risks associated with these benchmark-index heavyweights including:

• high concentration leading to lower diversification of broad indices,
• index sector weightings skewed more heavily towards tech,
• potential for style drift in large-cap benchmarks, and
• a heavy growth leaning that can reduce index dividend yield (growth companies tend to pay out lower/no dividends).

Additionally, due to the Magnificent Seven’s global nature, factors such as economic growth rates, geopolitics and regulation could impact stock performance.

Positioned at the cutting edge, the Magnificent Seven span business functions across the Information Technology, Consumer Discretionary and Communication Services sectors. However, AI was the big story in 2023. AI has been around for many years in forms such as recommendation algorithms and voice assistants, but due to developments in machine learning the leap in 2023 was the broader adoption of generative AI, which specializes in creating content.

All Magnificent Seven companies announced AI developments with Microsoft, Alphabet and Meta introducing large language models and chatbots of their own, Amazon incorporating AI tools into Amazon Web Services (AWS) and NVIDIA becoming a frontrunner in AI chip development. Tesla and Apple are also looking at ways to incorporate AI into their product offerings.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

¹Source: Tesla Q4 and FY 2023 Update, https://digitalassets.tesla.com/tesla-contents/image/upload/IR/TSLA-Q4-2023-Update.pdf.

²Source: Alphabet Q4 2023 Earnings Release, https://abc.xyz/assets/95/eb/9cef90184e09bac553796896c633/2023q4-alphabet-earnings-release.pdf.

³Source: Apple Q1 2024 Earnings Release, https://www.apple.com/newsroom/2024/02/apple-reports-first-quarter-results/.

⁴Source: FTSE Russell

⁵Source: MSCI

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