About a quarter of companies in the S&P 500 are scheduled to release their second-quarter results. Among those reporting after the market closes Tuesday are two heavy hitters: Tesla and Alphabet. Both companies are part of what’s been dubbed The Magnificent Seven.
The Magnificent Seven is, of course, a reference to the 1960s American Western film. But instead of seven cowboys, you’ve got Microsoft, Apple, Tesla, “Amazon, Meta, Alphabet, as well as Nvidia,” said James Angel, a finance professor at Georgetown.
They’re considered magnificent because together they represent 30% of the S&P 500, he noted.
“So if you have your retirement savings in a nice, plain, vanilla index fund, if it tracks the S&P 500, almost a third of your wealth is tied up in these seven stocks,” Angel said.
And those seven stocks are a big reason why the S&P 500 has been hitting record highs. In the first quarter of this year, the earnings growth of the Magnificent Seven was 50% on average, per Campbell Harvey, a finance professor at Duke.
And he’s worried about people who are literally buying into that because “a 50% earnings growth cannot be maintained.”
The recent performance of the Magnificent Seven may skew peoples’ investment decisions, it can also skew peoples’ view of the S&P 500 in general.
“The other 493 are pointing to a slowing economy,” Harvey said. “Yet we don’t really see it because we’re looking at the S&P as a whole.”
Still, these companies can be a bellwether of sorts. AI and electric vehicles are a part of the future, so it’s important to know just how many Teslas are being delivered — or how many AI data centers are being built, said Paul Christopher at the Wells Fargo Investment Institute.
“That’s going to take a lot of construction and it’s gonna take a lot of materials,” he said.
All that development can drive growth for other companies.
But Christopher warns investors that the Magnificent Seven might not always be so magnificent. Historically speaking, the companies that initially innovate are not necessarily the ones that stick around long term.
Remember, Christopher said: In the 1960 film, seven rode in but only three rode out.
