The Clash Against The Magnificent Seven – Community Advocate

Glenn Brown, CFP The Clash Against The Magnificent Seven

Never before has the S&P 500 been this top-heavy.

The seven largest companies by market capitalization (Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta, and Tesla) comprise more than 29% of the S&P 500 index. These companies dubbed the Magnificent Seven have performed very well in 2023.

A November 14th Goldman Sachs report shared that the Magnificent Seven have gained 71% this year while the other 493 stocks in the S&P 500 have gained just 6%. Given market cap distribution, which allows larger stocks to contribute more to the indexs movements, the S&P 500 has gained +19% this year.

Thus, if one owns the other 493 stocks but not the Magnificent Seven, theyre trailing the S&P 500 Index by ~13%.

As for other asset classes YTD through 11/14: +9.1% MSCI EAFE (International) Index. +7.5% Gold. +5.1% Dow Jones Industrial Average (Apple, Microsoft are components). +5.0% MSCI Emerging Markets Index. +3.4% U.S. Small Cap (Russell 2000) Index. +0.4% U.S. Aggregate Bond Index. -0.6% Morningstar U.S. Real Estate Index. What of dividend stocks? Vanguards Dividend Appreciation +7.9% trails S&P 500 Index by ~11% even though its largest holdings Apple and Microsoft are ~9%. It cant own other Magnificent Seven stocks because they dont pay dividends (yet). Before asking, what about NASDAQ 100s +34.6%? Understand, Magnificent Seven are 44% of that indexs 100 stocks.

Yes, Magnificent Seven 2023 returns are eye-popping, but lets review 2022 then add together for net total return (not average) from 01/01/22 -11/14/23. Apple: 2022 -26%; 2023 +45%; Net +7% Microsoft: 22 -28%; 23 +56%; Net +12% Amazon: 22 -50%; 23 +74; Net -13% Alphabet: 22 -39%; 23 +51%; Net -8% Nvidia: 22 -51%; 23 +240%; Net +69% Meta: 22 -64%; 23 +179%; Net 0% Tesla: 22 -65%; 23 +93%; Net -32%

Still, since 2018 the Magnificent Seven have outpaced the S&P 500 and Nasdaq 100. Not the first time a concentrated group of tech stocks outperformed 5 years to sit near the top of S&P 500.

In the late 90s, Dell, Cisco Systems, Intel and Microsoft were deemed The Four Horsemen.

To end 1999, the Top 10 S&P 500 Index holdings were Microsoft, General Electric, Cisco, ExxonMobil, Wal-Mart, Intel, Lucent, IBM, America Online and Citigroup. Notice 7 out of Top 10 were technology. Dell was #18, between Nortel Networks and MCI Worldcom.

A What Happened To? article should be done, but understand from 2000-2009, aka The Lost Decade, the S&P 500 Index lost -9%. The best performing Four Horseman, Microsoft, had a -36% decline for 2000s. Diversification and Equal-Weight At Work.

If S&P 500 was negative for the 2000s, so was everything else. Right? Nope. Per indices cited previously, Gold returned +274%, U.S. REITs +162%, Emerging Markets +154%, U.S. Bonds +85%, U.S. Small Caps +44%, and International stocks was +12%.

Additionally, the Equal-Weight S&P 500 Index was +65% for the 2000s.

An equal-weight index is when all components are weighted equally. In todays terms, a Magnificent Seven stock impacts the same as Lululemon, Hubbell and Blackstone, all recently added to S&P 500 Index.

This isnt to say sell this or buy that, as everyones situation is different with goals, taxes, risk tolerance and timelines. Its to help educate, understand what you own and why you own it.

You should go to your CFP for your customized recommendations.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Glenn Brown lives in MetroWest and is owner of PlanDynamic, LLC, http://www.PlanDynamic.com. He is a fee-only Certified Financial Planner helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.

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The Clash Against The Magnificent Seven - Community Advocate