The so-called ‘Magnificent Seven’ stocks, comprising Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and NVIDIA (NVDA), have been the driving force behind the impressive gains in the S&P 500 index in 2024. These stocks have not only led the broader market but also accounted for a significant share of the index’s earnings and market capitalization.
The ‘Mag 7’ Stocks: A Spectacular Ride in 2024
The Magnificent Seven stocks have been on a spectacular ride in 2024, driving much of the year’s gains. The S&P 500 was up an impressive 23.3% in 2024, while Roundhill Magnificent Seven ETF (MAGS) gained an astonishing 66.5% in the same period.
Market Share and Earnings Contribution
The ‘Mag 7’ companies take a notable share of the S&P 500 index, accounting for a significant proportion of its earnings. In Q3 of 2024, these seven stocks accounted for 23.1% of all S&P 500 earnings, with this number expected to increase to 25.8% in Q4.
In 2025, the ‘Mag 7’ stocks are expected to bring in 23.3% of total S&P 500 earnings and 33.8% of the index’s total market capitalization.
Earnings Growth: A Tale of Two Stocks
Through three-quarters of reports, the combination of those seven stocks saw earnings grow year over year by 33% in 2024 compared to just 4.2% growth for the other 493 S&P 500 companies, according to FactSet data as quoted on Yahoo Finance.
Will Their Magnificence Lose Luster in 2025?
Some experts believe that the dominance of the ‘Mag 7’ stocks is expected to moderate in 2025. Earnings growth for these seven companies outdid the rest of the S&P 500 in 2024, but this margin is projected to narrow significantly in 2025.
Goldman Sachs’ chief economist, David Kostin, has stated that the ‘Mag 7’ stocks are due for a decline in earnings growth, citing a slower pace of innovation and increasing competition as potential headwinds.
Why the ‘Mag 7’ Stocks Will Continue to Thrive
Despite these challenges, there are several reasons why the ‘Mag 7’ stocks will continue to thrive in 2025:
- Tesla’s Potential Benefits from Federal Deregulation: Analysts are optimistic about the potential benefits of federal deregulation for Tesla, which derives 33% of its valuation from the AV business.
- The Fed’s Lower Interest Rates: The Fed may be acting less dovish currently, but rates will definitely remain lower in 2025 than in 2024, which is great for tech stocks. As the tech sector relies on borrowing for superior growth, borrowing more money for further initiatives is cheaper when interest rates are low.
- Citi Strategist’s View: Defensive Play Amid Market Uncertainty: The Magnificent Seven stocks could function as a defensive play in 2025 amid market uncertainty. These stocks’ fundamentals are so strong that they could provide stability during times of uncertainty.
ETFs in Focus
Investors can bet on other exchange-traded funds (ETFs) that are heavy on ‘Mag 7.’ Some of the top ETFs include:
- MicroSectors FANG+ ETN (FNGS)
- Vanguard Mega Cap Growth ETF (MGK)
- Invesco S&P 500 Top 50 ETF (XLG)
- iShares S&P 100 ETF (OEF)
- SPDR NYSE Technology ETF (XNTK)
Conclusion
The ‘Magnificent Seven’ stocks have been the driving force behind the impressive gains in the S&P 500 index in 2024. While some experts believe that their dominance is expected to moderate in 2025, there are several reasons why these stocks will continue to thrive.
Investors can consider investing in ETFs that are heavy on ‘Mag 7’ or individual stocks within this group. With the Fed’s lower interest rates and potential benefits from federal deregulation for Tesla, the ‘Mag 7’ stocks are poised for continued growth in 2025.
Recommendations
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