Will the Magnificent 7 Become the Fantastic 4

The epoch characterized by the dominance of the illustrious "Magnificent 7" in the stock market is drawing to a close, as delineated by the analyst who originally bestowed the collective with its moniker.

This esteemed assembly, once a harmonious septet of mega-cap titans, is now experiencing a divergence in fortune, signaling a potential pivotal shift in market dynamics, as per Mike O'Rourke, Jones Trading's chief market strategist. His analysis, encapsulated in the memo "R.I.P the Magnificent Seven Era," posits that the overwhelming influence wielded by these behemoths is waning.

Originally, in April 2023, the Magnificent Seven were credited with a staggering 88% of the year's market gains, a figure that has since seen a significant reduction. Michael Hartnett later observed that these top-tier entities—Apple, Meta Platforms, Nvidia, Tesla, Amazon, and Microsoft—constituted 45% of the S&P 500's advancements, a substantial but diminished dominance.

The broadening of the market rally and the divergent paths taken by members within the Magnificent Seven, exemplified by the contrasting trajectories of Nvidia and Tesla, offer investors clearer differentiation opportunities. O'Rourke articulates, "The uniform ascension of these seven names, a rising tide lifting all boats in the stock market, is coming to an end. I foresee a departure from their collective progression."

Highlighting the disparity, Nvidia has soared, bolstered by the AI boom, marking a 66% increase this year alone, following a stellar earnings report. This surge starkly contrasts with Tesla's downturn, with a 22% decline amid an uncertain outlook for electric vehicles. Apple, too, has seen a modest decline early in 2024.

O'Rourke suggests that while these companies maintain their market sway, their individual performances are starting to neutralize each other's impact, diverging from their previously unified direction. A pivotal factor in this separation is the advent and integration of AI technologies, with Nvidia and Meta at the forefront of this trend. Nvidia's dominance in powering large language models and Meta's advancements in AI and the metaverse are testament to this shift.

However, not all members share this tech-centric focus, with companies like Tesla being perceived more for their primary industries despite their AI ambitions. Additionally, external factors such as exposure to the Chinese market have further contributed to the diverging fortunes of these firms.

Though the "Magnificent Seven" nomenclature may persist, a reevaluation or rebranding seems imminent as the disparity in performance continues to emerge. Dan Niles of the Satori Fund proposes a streamlined "Fantastic Four," suggesting a realignment based on current earnings and market competition, positioning Nvidia, Meta, Amazon, and Microsoft as the core of this revised grouping. This recalibration reflects the evolving landscape of the stock market, where traditional giants are reassessed in light of new technological frontiers and market realities.


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