The Magnificent Seven Myth Is Starting to Crack

"As of mid-December, only Nvidia and Alphabet are beating the S&P 500 this year. The rest of the Magnificent Seven are trailing the benchmark. That surprised even seasoned investors. Amazon (NASDAQ: AMZN) underperforming was not shocking, but Microsoft (NASDAQ: MSFT) lagging the index caught many people off guard given its solid earnings and strong AI narrative. Meta Platforms (NASDAQ: META), Apple (NASDAQ: AAPL), and Tesla (NASDAQ: TSLA) have also struggled on a relative basis."

"Leadership fatigue is a market signal Lee and I have both seen this movie before. Every era has its dominant group, whether it was the Nifty Fifty in the 1960s, the dot-com leaders in 2000, or the financials and housing-related stocks before the global financial crisis. Leadership does not disappear forever, but it does rotate. What makes the current setup notable is how quickly that rotation is happening."

As of mid-December, only Nvidia and Alphabet were beating the S&P 500 year-to-date, while the other five members of the Magnificent Seven trailed. Microsoft’s lag was unexpected given solid earnings and a strong AI narrative. Meta, Apple, Amazon, and Tesla also underperformed. Collectively, five of the seven stocks that carried the market for nearly three years stopped doing the heavy lifting. Historical patterns show dominant groups rotate over time, as with the Nifty Fifty, dot-com leaders, and pre-financial crisis financials. Rapid leader rotation shrinks the margin for error and can precede market tops. The S&P 500 nonetheless gained roughly 15–17% and remains on track for a rare third consecutive year of double-digit gains.

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