As the curtains fall on 2023, this market year will be remembered for the start of a new bull market sparked by megacap technology stocks, namely the so-called Magnificent Seven, which dominated the gains in the S&P 500 index, which is up 24% year to date through Friday's close, while surging impressively more than 15% from its Oct. 26 low.
The fervor surrounding the Magnificent Seven stocks raises questions as to whether there remains any room for more gains in 2024. It's a reasonable question. Aptly labeled the "Magnificent Seven" by Bank of America analyst Michael Hartnett, seven stocks (Alphabet, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla) by their collecting weighting have contributed contributed 60% of this year's roughly 24% total return for the S&P 500.
These seven tech behemoths have also powered the Nasdaq Composite, which soared more than 40% in 2023. The fact that these seven stocks contributed so significantly to a rally in one calendar year causes some discomfort: With the rally being so narrow, it raises the question whether this is truly a bull market, which typically features more participation and broader leadership, particularly amid growing confidence in the economic outlook.
This rally was unexpected considering that investors spent most of 2023 fretting about inflation, interest rates and a recession that was always just around the corner. How is it possible to have confidence in a market when there is seemingly only seven growth stories? But that’s where you’re wrong. While the three closely-watched indexes have gained an average of 5%, all eleven S&P 500 sectors have climbed during that span, and prompting the term “everything rally.”
With one week remaining in the year, investors are snapping up everything from stocks, bonds, crypto and gold. But focusing back on the Magnificent Seven, there are plenty of investors who have missed the rally in 2023. Year to date, Apple -- the largest of the bunch in terms of market cap — has retuned 49%, while Microsoft, the second largest, boasts an even more impressive gain of 56%. The impressiveness doesn’t stop there, however. Tesla has doubled in value, gaining 105%, while Meta has enjoyed a remarkable return of 193%. And to say nothing about this year’s AI darling Nvidia, which is up a breathtaking 243%.
Understandably, investors are likely wondering whether there's any room for gains in 2024. But while their collective valuation might have gotten a bit stretched, their tech leadership in the financial markets is undeniable.
The reason for their collective popularity, which can’t be overstated, stems from their exposure to high-growth technologies, such as high-end software and hardware, cloud computing and artificial intelligence. And it's also worth noting that this isn't new: the seven stocks have more than doubled the return of the S&P 500 over the past decade. Armed with tons of cash on the balance sheet, strong cash flows and excellent leadership, the Magnificent Seven are well-positioned to continue leading their respective markets in 2024.
In other words, even as the Magnificent Seven stocks are at a combined market capitalization of more than $10 trillion, there are still many reasons to expect them to keep winning in 2024. As to the overall market in 2024? The prospect remains bright, if troubled segments of the economy can recover in 2024, creating a bullish scenario where the rest of the market catches up to the Magnificent Seven.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio