It Was a New Day Yesterday…
But it’s an old day now (with apologies to Jethro Tull). Financial markets are dominated by cycles. In 2023, the Magnificent 7 dominated the stock market. Those seven stocks had a terrific year, while the other 493 stocks in the S&P 500 collectively struggled to keep their heads above water. The chart below only runs through late-November, but the trend is very clear. Those seven ‘mega cap technology’ stocks have been on a memorable upward rampage this year and it seems easy to simply expect that to continue. AI holds lots of promise and there are no specific dark clouds on the horizon for big tech, so why can’t the outperformance continue?
But context is everything. Pundits tend to break down performance into time segments that mesh with the calendar. Of course, the stock market cares nothing about what year or what season it is. Here is another interesting factoid that would seem impossible in light of the stock market performance in 2023. As of December 21, only 4 of the Magnificent 7 stocks have outperformed the S&P 500 since 2022! (See the table below.) And if we had measured a week or two earlier, only three would have outperformed the S&P 500. Our conclusion? All those pundits that tell you to lament the past year if you missed it, are simply wrong. In fact, you’ve missed very little, if anything. The stock market is simply back where it was 2 years ago.
We happen to think the chart below could be one of the most important charts for 2024. Since the October low in the S&P 500 index, the equal weight S&P500 index has outperformed the S&P500 index. (See chart below.) Translation: the Magnificent 7 stocks have begun to underperform the index. As market trends take hold and dominate the narrative, it is critical to remember that market leadership is not something that trends for long. It is fundamentally mean reverting. In other words, there is a natural rotation in markets. Leaders are destined to become laggards and vice versa. The trend is your friend, but only temporarily.
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Magnificent 7, Market Cycles, S&P 500, Stock Market, Stock Market Cycles, StocksBy: thinkhouse