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Traders work on the floor of the New York Stock Exchange during morning trading on January 31, 2024 in New York City.
Michael M. Santiago | Getty Images
The so-called “Magnificent Seven” now have more financial power than nearly every other major country in the world, according to new research from Deutsche Bank.
The sharp increase in profits and market capitalization of the seven Magnificent US tech giants (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla) is due to the rapid increase in profits and market capitalization of all listed companies in almost all G20 countries. , the bank said in a research note. Tuesday. Among the G20 countries other than the United States, only China and Japan (the latter is the only one) would benefit greatly from merging listed companies.
Deutsche Bank analysts emphasized that Magnificent 7’s market capitalization alone would make it the world’s second-largest national stock exchange, twice that of Japan’s fourth-largest stock exchange. It added that the individual market capitalizations of Microsoft and Apple are similar to those of France, Saudi Arabia, and the United Kingdom’s listed companies combined.
However, this level of concentration has caused some analysts to express concerns about the associated risks in the U.S. and global stock markets.
Jim Reid, head of global economic and thematic research at Deutsche Bank, warned in a follow-up note last week that the U.S. stock market is “rivaling 2000 and 1929 for being the most concentrated in history.” .
Deutsche analyzed the trajectory of all 36 companies in the top five S&P 500 companies by market capitalization since the mid-1960s.
Reed notes that while large companies tend to eventually fall out of the top five as investment trends and earnings prospects evolve, 20 of the 36 companies in the top 50 are still in the top 50. He pointed out that there was.
“Among the current top five Mag 7s, Microsoft has been in this position for all but four months since 1997, Apple since December 2009, and Alphabet two or so times since August 2012. “All periods except January, and Amazon since January 2017. The newest entrant is Nvidia, which has been around since the first half of last year,” he said.
Tesla spent 13 months in the top five most valuable companies in 2021/22, but has now fallen to 10th place, with its stock price down about 20% since the start of 2024. In contrast, Nvidia’s stock price continues to rise. , up nearly 47% year-to-date.
“Thus, at the Mag 7 end, although there is some variation in terms of membership status, which can cast doubt on the overall reputation, the core of the group remains the largest and most successful group in the United States and around the world. It’s a company. It’s been years,” Reid added.
Could the benefits extend further?
Despite a weak global economic outlook in early 2023, Wall Street stock market returns were impressive, but largely concentrated in the Magnificent Seven, which benefited greatly from AI hype and interest rate cut expectations Was.
Asset management firm Evelyn Partners said in a research note last week that Magnificent 7’s 2023 return was a staggering 107%, compared to the broader MSCI, which has delivered a still healthy but relatively paltry 27% to investors. He emphasized that it far exceeded the USA index.
Daniel Casali, chief investment strategist at Evelyn Partners, suggested there are emerging signs that opportunities for U.S. stocks could expand beyond the 7 mega cap this year for two reasons: It is the resilience of the US economy.
“Despite rising interest rates, corporate sales and profits have remained resilient. This can be attributed to companies taking tighter control over costs and households accumulating higher levels of savings during the pandemic. , the U.S. labor market is healthy and will add nearly 3 million jobs in 2023,” Casali said.
The second factor was improved margins, which showed that the company was able to properly raise prices and pass on the effects of higher inflation to customers, Casali said.
“While wages are rising, they have not kept pace with inflation, leading to lower employment costs as a proportion of the price of goods and services,” Casali said.
“Factors such as China’s entry into the World Trade Organization and advances in technology have increased the supply of labor and provided access to overseas job markets. This has contributed to higher profit margins and growth, and we expect this trend to continue.”
If the market is very focused on a small number of stocks and one specific theme, particularly AI, there is a risk of missing out on investment opportunities, Casali said.
Many of the other 493 stocks in the S&P 500 have struggled over the past year, but if the two aforementioned factors continue to stimulate the economy, some could start to participate in the rally, he said. suggested.
“Investors may be inclined to continue supporting AI-driven stocks going forward, given their strong performance in 2023 and earlier this year,” he said.
“However, if the rally starts to widen, investors could miss out on other opportunities beyond Magnificent Seven stock.”
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