The Magnificent Seven’s impact on the S&P 500
May 02, 2025
Market Concentration and the “Magnificent Seven”
The S&P 500, a key barometer of the US stock market, is currently exhibiting a remarkable degree of market concentration. The top 10 stocks within the index now account for 33% of its total market value, significantly surpassing the 27% concentration observed at the height of the tech bubble in 2000. This trend has been driven largely by the "Magnificent Seven": Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, and Tesla. These stocks have collectively amassed substantial market capitalisation, leading to a skew in the index's performance and valuation metrics.
Dominance of Tech Giants
The influence of these tech giants is particularly noteworthy. Nvidia alone has been responsible for 34.5% of the S&P 500’s gains in 2024, highlighting the critical role a company can play in driving market performance. The combined market cap gains of Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta amounted to $1.3 trillion in May 2024, accounting for 76% of the S&P 500’s total gains for the month. This underscores the outsized impact of a few major players on the overall index.
Performance Comparison: S&P 500 vs. Equal-Weighted S&P 500
The performance divergence between the S&P 500 and its equal-weighted counterpart underscores the market concentration issue. While the S&P 500 posted a nearly 3.5% gain in June 2024, by contrast the equal-weighted S&P 500 was down 0.7% in the month. This disparity has been consistent throughout 2024, with the traditional S&P 500 significantly outperforming the equal-weighted index, 20.6% and 8% respectively, through to June. Notably, within the S&P 500, the year-to-date change for the "Magnificent Seven" stocks is 31.8%, compared to a 7.7% YTD change for the remaining 493 stocks as of June 2024.
Implications for Investors?
While the dominance of the "Magnificent Seven" has propelled the market to new heights, it also introduces potential risks. Investors should be mindful of the implications of this concentration and consider diversifying their portfolios to mitigate potential downturns in these influential stocks. As history has shown, the market dynamics can shift, potentially leading to a broader dispersion of gains across the S&P 500, which investors can benefit from. One way is to have direct exposure to the S&P Equally Weighted Index. Investors could also look into structures that can provide them an opportunity to participate on the upside of these megacap stocks and the broader market, but can also provide some downside protection in case the recent run-up in these names were to reverse. Of course, investors should ensure that at all times the portfolios should be well diversified and in line with their risk profiles.
Discover Similar Insights
Every day, our experts deliver fresh insights on trending topics,
sectors and markets to help you stay ahead of the curve.
I Inherited a windfall - it was a blessing and a curse
Young millionaire heirs are giving away their fortunes to worthy causes, instead of living a life of luxury. When Paolo Fresia inherited tens of millions of pounds following his mother's death, it was "a blessing and a curse". At first, he simply acted as though it wasn't happening. Then just 22, "my focus was to run away and pretend that that didn't exist," he says.
Market Correction – What is Ahead for Investors!
Introduction Since November 2023 US stocks have rallied almost 30% until the recent drawdown that started in early April. The S&P 500 was down as much as 5.5% in April before the last week’s bounce. Growth-sensitive Nasdaq Index was down nearly 8%, while small-cap stocks were down by a similar amount in April. By contrast, traditional safe-haven asset gold is up over 5%, even as US government bonds sold off. Yields on the 10-year US Treasury have risen to about 4.6% from under 4.2% in March as investors' price-in for fewer Fed rate cuts for 2024. It is entirely normal for corrections of this magnitude in bull markets, especially after the rally we have seen in the past few months, and the pullback is still modest.
Dividend Stocks – potential to Outshine Bonds in a Low Interest Rate Environment
Introduction As we approach September 2024, a significant shift in the financial landscape looms large. The Federal Reserve, having spent much of the past few years hiking interest rates to combat inflation, is now expected to pivot toward cutting rates. This change could open new opportunities for investors, particularly in the realm of high-yield dividend stocks. Historically, rate cuts have had a profound impact on various asset classes, and high-yield dividend stocks have often emerged as winners compared to more traditional income vehicles such as bonds and certificates of deposit (CDs). Companies with a constant and reliable source of income in the form of dividends do well over the long run. These companies are particularly attractive to investors seeking a combination of regular income and capital appreciation. In the environment that lies ahead, these stocks could prove compelling as yields from bonds and CDs drop as a result of the interest rate cuts by the central banks across the developed world. Dividends are likely to be maintained, and there is a potential for these payments to even increase.
Hotel Tycoon Takes £6m Life Insurance to Shield Business from Inheritance Tax Hike
‘I’m insuring my life for £6m to protect family from IHT raid’ More business owners are seeking policies to protect their assets from ‘death tax’ for after they have gone A BRITISH hotel tycoon is buying a £6m life insurance policy to protect his fortune from Rachel Reeves’s inheritance tax raid.