by Jason Norris
Director
Equity Research and Portfolio Management
When my family gathers around the holidays, we enjoy catching up on Jeopardy episodes with our two daughters. As they are both educators, it can be difficult for my wife and me to keep up, but it can also get pretty competitive. In one episode, I had the upper hand as the category was the “Magnificent Seven.” Luckily, this didn’t refer to the movies but to the seven stocks dominating the stock market. In investing circles, the term “Magnificent Seven,” or Mag-7, is well known, and I was surprised it had become recognizable enough to be a Jeopardy category. Unfortunately, while I was the first to “buzz in” and answer correctly in this category, I wasn’t as fortunate the rest of the game.
The Mag-7 is composed of Alphabet, Meta, Microsoft, Amazon, Tesla, Apple and Nvidia, all of which have dominated the returns of the equity markets over the last two years. In 2023, they were up over 100%, contributing close to 100% of the entire market’s return. That continued in 2024, although at a muted rate, as they rose 56% and contributed roughly two-thirds of the 25% return of the S&P 500. Stated another way, the S&P 493 would have only seen a return of around 12% without these seven stocks. While this isn’t considered a bad year, it highlights that just seven stocks can have an outsized effect on the overall market. Unlike 2023, in 2024 the S&P 500 showed broader participation by other stocks outside of Technology. For instance, the Financials sector was up over 30%, and two of the top contributors to the market’s return (outside of the Mag-7) were Walmart and JP Morgan.
Turn the Page
Source: FactSet
Investors cannot invest directly in an index.
The Mag-7 has garnered these returns due to profit growth. While the Mag-7 drove 2023 and 2024 S&P 500 returns, the remaining stock market (S&P 493) should start to show increasing profit growth in 2025. We are led to believe that we will see broader participation in equity returns outside of Technology stocks. After all, trees don’t grow to the sky; thus, we believe there will be a “normalization” of profit growth over the next few years.
January Stars
Investors have a habit of looking at the calendar to get a signal of what future returns will be. With stocks falling over 2% in December, some might wonder if this is a negative signal for 2025. Data released by Strategas shows December’s performance has no bearing on the next six months. However, January has shown itself to be an early indicator for the first half of the year. If stocks are up in January, historically, the next six months deliver high single-digit returns. However, if stocks are down, investors tend to break even in the first six months. It’s easy to get caught up in short-term indicators, thus investors adhere to the wise words of Benjamin Graham, the “father of value investing” when he said, “in the short run, the market is a voting machine, in the long run it’s a weighing machine.”
Our Takeaways for the Week
Stocks finished the week flat as trading volumes remained light as we turned the page to 2025
Interest rates held steady as well, with the 10-year Treasury hovering around 4.6%