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The S&P 500 Through the Prism of a ‘Magnificent 7’

By Joe RennisonJan. 27, 2024

The S&P 500 Through the Prism of a ‘Magnificent 7’

Forget the long list of companies that pushed the S&P 500 to a new high this month. All investors needed to mint bumper returns were the “Magnificent Seven.”

Here’s what that means →

Melanie Lambrick

The group’s name, an allusion to a 1960s western starring Steve McQueen, was coined by the Bank of America analyst Michael Hartnett early last year.

It consists of Google’s parent, Alphabet; Amazon; Apple; Facebook’s parent, Meta; Microsoft; Nvidia; and Tesla.

These stocks rose an average of 105 percent in 2023, led by Nvidia.

The chip company, up more than 200 percent last year, is a key partner of Microsoft in that company’s efforts to capitalize on developments in artificial intelligence. Microsoft itself rose 57 percent.

The S&P 500 index also had a good run in 2023, much better than was expected at the start of the year, when inflation and higher interest rates clouded the outlook.

The index rose more than 23 percent, compared with a plunge of 20 percent in 2022 and a gain of around 15 percent in 2021. This month, the index clocked a record high.

But roughly 60 percent of the S&P’s gain last year was driven by those seven tech-focused stocks, meaning that without them, the index would have risen just 15 percent, and would not have reached its current level.

Nvidia/Via Reuters

Curiously, none were among the best-performing stocks in the index, but they still generated the most returns for it. Sounds odd, right?

It’s because the S&P is weighted to company size; a small move in a very big company will have a greater impact than a big move in a much smaller company. And all the companies in the Magnificent Seven are very big.

Apple, among the world’s largest companies, is worth over $3 trillion. To the index, its 50 percent rise last year was worth roughly 90 times Carnival’s 130 percent rise, because Carnival is worth only $20 billion.

This means the unexpected rally last year was less a product of widespread enthusiasm over the outlook for corporate America than the result of soaring gains for just a handful of stocks.

In recent months, however, more stocks joined the rally — a positive sign for the broader market, especially as the Magnificent Seven’s performance has become more mixed since the start of the new year.

Still, the dynamic points to the need to dig deeper than the broad performance of major indexes to understand what the market is communicating about the economy.

Karsten Moran for The New York Times

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