Many film fans hear the words “Magnificent Seven” and immediately think of the American western film from 1960 or the contemporary remake in 2016 with Denzel Washington and Chris Pratt. The latest use of the phrase Magnificent Seven, however, refers to seven large stocks that have driven most of the stock performance in the S&P 500 this year.
The Magnificent Seven are the seven largest stocks in the S&P 500 and are very recognizable companies. Also, these companies share the characteristic of innovation and leadership in their respective sectors. The seven names are listed below with their respective weights in the S&P 5001 and their year-to-date returns through Nov. 17, 2023.
Due to their weight in the index, the Magnificent Seven are a significant driver to the overall performance of the S&P 500. As of mid-November, they made up over 28% weight in the index. Their relative size, combined with their outsized performance, has been a significant tailwind to the 19.20% year-to-date S&P 500 return (as of Nov. 17.) To reflect the significance of this differential, the chart below shows the performance of the Magnificent Seven versus the other 493 companies in the S&P 500.2 The combined index returns of the Magnificent Seven this year (dark blue) is 71% versus the remaining 493 names (light blue) which is only 6%.
The concentration of the Magnificent Seven, as a percent of the S&P 500 total weight, is also notable.
- Currently the total weight is nearly 29%
- Over the last decade, the top seven companies have accounted for 21% of the S&P 5003
The fact the index is becoming more concentrated and currently influenced heavily by only seven stocks is noteworthy, but their weight alone doesn’t predict the future direction of the stock market. The Magnificent Seven are certainly worth monitoring since their performance, positive or negative, can influence the direction of the stock market. A broadening of market participation in 2024 would be a welcome event, lifting the burden off the shoulders of the Magnificent Seven as other stocks contribute more significantly to overall performance of the S&P 500.
Posted here by Keith Gangl on December 12, 2023