From magnificent seven to the fab four, the Stock market continues it run
The stock market continues to rise despite the fact that the Magnificent Seven trade is starting to lose steam.
Despite two of its largest components seeing double-digit drops, the S&P 500 nevertheless managed a 10% first-quarter gain, its best start to a year since 2019. While Tesla’s stock tumbled nearly 30% in Q1, Apple’s stock fell 11%. Throughout much of the period, Alphabet shares were flat. However, they had a strong run in the last three weeks, and they ended up up 8%.
Microsoft, Amazon.com, Meta Platforms, and Nvidia—the other four members of the Magnificent Seven—persisted in their ascent above the market average. They are being called the new Fab Four by some market strategists.
Since other groups are participating, some investors see this as a bullish indicator that the market is still soaring even without companies like Apple and Tesla. With the exception of real estate, every single sector of the S&P 500 saw increases in the first quarter. A number of stocks, including small-caps, industrial, and financial services, surged, adding fire to the speculation that the market as a whole may have additional room to run.
The belief that the economy has pulled out of a severe recession and that the Federal Reserve would soon begin to drop interest rates—albeit at a slower pace than some investors had anticipated—is a major factor in the optimism. The excitement is even higher now since everyone is so excited about AI’s potential.
According to Carson Group’s chief market strategist Ryan Detrick, “I would have assumed the market would be down if you had told me eight weeks ago that Apple and Tesla would be down as much as they are.” It’s also worth noting that the timing of rate cuts is being delayed, and fewer cuts are being granted.
Indeed, there are investors who are concerned that the difference in the major tech companies indicates that the rally is nearing its end and wonder if further gains will be more difficult to get going forward. Since the end of October, the market value of the S&P 500 has increased by over $9 trillion, and the index has achieved 22 record closes in 2024.
U.S. manufacturing statistics will be released on Monday and the monthly jobs report will be released on Friday. Investors who are trying to predict the market and economy’s direction will analyze both reports.
The stock market continues to adore Nvidia. The graphics-chip manufacturer has stated that there is still an enormous need for the processing power required by AI. Its stock price more than tripled in 2023 and has since soared more than 80% so far this year.
Nvidia has surpassed Tesla in popularity among individual investors, according to certain measures. Data from VandaTrack shows that, at almost 9%, it is the largest average position in individual investors’ portfolios at the moment.
The company’s advances in AI have led to smarter targeted adverts, which has contributed to a meteoric rise in Meta’s stock price. Just lately, the social media firm announced it would be paying a dividend to its shareholders for the first time. With a valuation that over $3 trillion, Microsoft surpassed Apple as the largest U.S. firm earlier this year, while Amazon had a dramatic improvement in its profitability.
Although they have recently gained value, some of these stocks appear more affordable than they were a year ago. The current price of Nvidia shares is 35 times the company’s 12-month profits forecast, which is lower than last May’s high of 62. The multiple for Amazon has dropped to 40 from 62 in 2023. A little higher than last year’s all-time high of 19, the S&P 500 is now trading at 21 times projected profits.
S&P Dow Jones Indices senior index analyst Howard Silverblatt claims that the Fab Four are to blame for almost 50% of the S&P 500’s first-quarter gain.
Investors, according to Gateway Investment Advisers’ investment strategist Joseph Ferrara, will likely shift their focus away from large tech companies and toward other industries as the year goes on. This is mainly due to the fact that, by the end of the fourth quarter, it is anticipated that the earnings of the remaining 493 firms in the index will surpass those of the Magnificent Seven.
According to him, it’s a great sign that the market is still holding its levels and trading higher even without the Magnificent Seven’s full force.
It will be difficult to surpass the tremendous rise they achieved at the end of last year, according to UBS strategist Jonathan Golub, which is one reason Magnificent Seven’s profits supremacy could expire. In a recent research note, he stated that when contrasted to the weaker data from 2022, those outcomes appeared to be huge beats.
A year ago, the entire market would have crashed at the first sign of trouble for the Magnificent Seven. Actually, the entire gain of the S&P 500 for a significant portion of the year was due to those seven stocks.
Everything is different this year. Many fronts are against Tesla. Chinese rivals have swiftly increased their global footprint in recent years, putting pressure on the electric-vehicle producer. Its profit margins have shrunk, and it has issued a warning about significantly slower growth in 2024.
The problems at Apple have also been getting worse. Recently, the firm was sued by the Justice Department for monopolistic conduct. There has been a crackdown on its app store by European authorities. Worse yet, investors are concerned that Apple would fall behind the AI hype train just as the iPhone demand cycle begins to recover.
Based on statistics from Bespoke Investment Group, Apple’s stock has underperformed the S&P 500 for the 200 days ending Tuesday by more than it has since October 2013.
