Mag Insanity

The US stock market has been split into the magnificent world of the Magnificent 7 (Amazon, Apple, Alphabet, Meta, Nvidia, Tesla, and Microsoft), and everything else: the dreary existence of the 493 remaining S&P500 members. 

Magnificent 7's parabolic rise has led to mounting concerns about Dot Com bubble 2.0 and overconcentration risks - many of which I have outlined in my daily ANDIKA BULLETin reports.

In a new research note by Jim Reid, who leads global economics and thematic research at Deutsche Bank, he presents two charts from a lengthy chart pack, illustrating how the size of Magnificent 7 has surpassed the size of many stock markets of developed nations. 

"The Mag 7 mkt cap alone would make it the 2 nd largest country stock market in the world, double Japan in fourth. France, Microsoft, Apple, Saudi Arabia and UK market caps are all very similar," Reid said. 

Reid continued: "Mag 7 make around as much profit as Japanese stocks and around half of Chinese ones..." 

In a separate note, analysts from Richard Bernstein Advisors warned valuations of the Magnificent 7 are "extreme": 

"The Magnificent Seven's significant outperformance might be justified if they were truly unique. Unfortunately, that is not the case," the firm said, adding, "Rather, it increasingly seems investors' enthusiasm for these seven stocks is a reflection of today's speculative, momentum-driven market. But investors' myopia has resulted in tremendous opportunities elsewhere."

Despite these concerns, David Kostin from Goldman Sachs believes that the Magnificent 7 has the potential to continue its upward trajectory throughout 2024.

Let's hope all the money spent on future technologies, such as AI, leads to better productivity gains, thus higher sales growth or risk facing some giant chatbot dead end.  

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