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The Magnificent Seven were the undisputed drivers of the market’s 2024 performance.
These seven stocks — tech-heavy titans that include Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), Nvidia (NVDA), and Tesla (TSLA) — not only carried the Nasdaq and the S&P 500 higher, but also masked underlying weakness in the broader market.
In 2024, the S&P 500 soared an impressive 23% — a rare feat for an index that typically averages annual gains of 6–7%. But beneath the surface, equal-weighted indices like the RSP, which evenly weights all S&P 500 stocks, painted a much bleaker picture.
RSP underperformed significantly, rising about 11%, reflecting the narrow leadership of a few mega-cap stocks.
So, what happens if the Magnificent Seven falter in 2025?
The Weight of Giants
The outsized influence of these seven stocks means their performance can make or break the entire market. For example, the equal-weighted Nasdaq 100 (QQQE) closed 2024 trading below its 50-day moving average, while the market-cap-weighted Nasdaq 100 (QQQ) held steady above it.
This divergence underscores how much the broader market depends on these high-performing giants.
Fund managers often turned to these stocks late in the year to pad their performance — chasing returns to outperform the S&P 500 and secure bonuses.
This end-of-year rush created a scenario where the Magnificent Seven became even more overextended.
But what goes up quickly often risks a pullback just as swiftly.
If fund managers pivot to free up cash in 2025, these same stocks could become targets for profit-taking. With their enormous market caps, even a modest sell-off could ripple across the broader indices, dragging them down.
The broader concern is sentiment.
A stumble from the Magnificent Seven could erode confidence in the market, especially since these stocks are seen as stalwarts. If they falter, it’s not just a technical issue — it’s a psychological one.
The S&P 500, Nasdaq and the Russell 2000 all carry structural and sentiment risks as we head into January’s choppy trading weeks. And with equal-weighted indices already below key moving averages, the chances of the market finding support without its star performers diminish significantly.
What to Watch
If these giants begin to underperform, the Health Care (XLV), Consumer Staples (XLP) and Utilities (XLU) sectors could see inflows as investors seek defensive havens. However, without broad sector participation, the market’s ability to rally sustainably will be in question.
The Magnificent Seven carried the torch in 2024, but their dominance is a double-edged sword. If they falter, 2025 could begin with a rocky correction — or worse, a downturn that challenges the market’s bullish resilience.
Kane Shieh
Kane Shieh Trading
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