Big drops in two of the Magnificent Seven stocks haven't dented the group's influence on the S&P 500. In fact, the trendy stocks dominate now more than ever.
The seven megacap stocks — Microsoft, Apple, Nvidia, Alphabet, Amazon.com, Meta and Tesla — account for 29.7% of the S&P 500 as of April 17, says Datatrek Research. That's up from the group's 27.9% weight in the S&P 500 in 2023.
Seeing the group's hold over the world's most popular index grow this year might surprise you. Shares of Tesla are down 37.4%.
"Despite all the buzz around the death of the 'Magnificent 7,' U.S. big tech is actually a more dominant force in American stock markets than at the end of 2023," said Nicholas Colas of Datatrek in a report.
The Rise Of AI
Tesla isn't the only Magnificent Seven stock in the dumps. Apple is off more than 12%.
So why is the Magnificent Seven still such a big deal? You can thank AI. AI chip wunderkind Nvidia has seen its position in the S&P 500 rise to 5.1%, up from just 3.1% at the end of 2023. "Nvidia's incremental weight since the end of last year more than makes up for those declines," Colas said.
Additionally, five of the Magnificent Seven stocks are up this year. That includes Microsoft, which is also pressing in AI. "Weightings for the other 4 names are also higher this year," Colas said.
Had investors simply owned the Magnificent Seven stocks this year, they'd be up 14% vs. just 5% with the S&P 500.
"For better or worse, Big Tech is still the most important swing factor in S&P 500 index returns," Colas said.
What's Next For Magnificent Seven?
Much of the Magnificent Seven's future hinges on their upcoming first-quarter profit reports. All but Nvidia's are due out in the next few weeks.
On the plus side is Microsoft. "Microsoft ... has historically done well in response to first-quarter earnings," said Bespoke Investment Group. "Microsoft has beaten earnings per share and sales estimates on each of its last six first-quarter reports going back to 2018, and shares have traded higher on the day following in 10 of the last 12 first-quarter releases."
Unfortunately, Tesla tends to struggle in the first quarter's report. Tesla is "a name that has had a rough go of it when it comes to its first-quarter earnings releases," Bespoke said. "Tesla has fallen pretty significantly on seven of its last eight first-quarter earnings reaction days going back to 2016."
Expect lots of drama, though.
"On average these stocks tend to gap up at the open following their earnings releases but then sell off a bit during regular trading hours," said Bespoke Investment. "If you see these names trading sharply higher after hours or pre-market following earnings, it's best to not chase once the market opens for trading."
The Magnificent Seven's Rising Fortunes
| Company | 2023 S&P 500 weighting | 2024 weighting |
|---|---|---|
| Microsoft | 7.0% | 7.3% |
| Apple | 7.0% | 5.8% |
| Nvidia | 3.1% | 5.1% |
| Alphabet | 3.8% | 4.0% |
| Amazon | 3.4% | 3.9% |
| Meta | 2.0% | 2.6% |
| Tesla | 1.7% | 1.0% |
| Total/Average | 27.9% | 29.7% |
