The Power of the ‘Magnificent 7’: Dominating the 2023 Stock Market – Revealed in One Chart

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The S&P 500 (^GSPC) is currently experiencing an unprecedented situation, with the top seven tech stocks taking up 29% of the market cap.

These “Magnificent 7” stocks include Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA), and they are now responsible for the largest portion of S&P 500 market cap in history.

This dominance of just seven stocks is evident from Goldman Sach’s 2024 US Equity Outlook, which features a chart that highlights the significant gains made by the “Magnificent 7” compared to the rest of the stocks in the index.

As per Goldman’s data, the “Magnificent 7” have enjoyed a 71% increase, while the remaining 493 stocks have only seen a 6% rise. This is attributed to the larger stocks’ impact on the index’s movements, resulting in a 19% overall increase in the S&P 500 for the year.

Research from Goldman Sachs shows the S&P 500 has never been this top heavy, which is leading to gains in seven stocks driving the major average higher.
Research from Goldman Sachs shows the S&P 500 has never been this top heavy, which is leading to gains in seven stocks driving the major average higher.

Research from Goldman Sachs shows the S&P 500 has never been this top heavy, which is leading to gains in seven stocks driving the major average higher. (Goldman Sachs Global Investment Research)

Goldman Sachs’ chief US equity strategist, David Kostin, called the outperformance of the “Magnificent 7” a defining feature of the equity market in 2023, supported by additional graphs from their outlook.

Data from 2013-2019 shows that the “Magnificent 7” had a compound annual growth rate of 15%, significantly higher than the 2% rate of the remaining stocks. The margin narrowed in the last two years but is expected to widen again in the coming years. Goldman forecasts an 11% compound annual growth rate for the “Magnificent 7” versus 3% for the rest of the S&P 500 from 2023 to 2025.

In terms of net profit margin and long-term earnings per share growth expectations, the “Magnificent 7” outperform the rest of the companies in the index, further justifying their position in the market.

Two graphs from Goldman Sachs highlight why the Magnificent 7 tech stocks have outperformed the rest of the benchmark index.
Two graphs from Goldman Sachs highlight why the Magnificent 7 tech stocks have outperformed the rest of the benchmark index.

Two graphs from Goldman Sachs highlight why the Magnificent 7 tech stocks have outperformed the rest of the benchmark index. (Goldman Sachs Investment Research)

Looking ahead, Goldman Sachs anticipates continued growth for the “Magnificent 7,” although the trade may not be particularly attractive due to elevated expectations.

Josh Schafer is a reporter for Yahoo Finance.

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