Quiver Quantitative - In the midst of a U.S. stock market downturn, the "Magnificent Seven," a collection of preeminent technology and growth stocks, are drawing the attention of investors looking for discounted opportunities. These giants, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Nvidia (NVDA), Meta Platforms (META), and Tesla (NASDAQ:TSLA), have seen an average dip of 15% from their peak this year, yet their enduring appeal is underscored by more reasonable forward price-to-earnings ratios, now hovering around 30 times. Market participants are especially keen on these stocks, perceiving them as high-caliber entities capable of withstanding economic fluctuations, a sentiment echoed by King Lip of Baker Avenue Wealth Management, who has increased his firm's investment in some of these companies.
These seven companies, due to their substantial combined weight of 28% in the S&P 500, possess significant influence over the index, which has seen a 9% drop from its yearly high. Nevertheless, the index has managed to maintain a 9% increase overall for the year. Inflows into tech stocks have surged, with $2 billion recorded last week, indicative of investors' eagerness to capitalize on the sell-off. The ongoing inflows and purchases are largely contingent on macroeconomic factors, including the trajectory of Treasury yields, which have soared to 16-year highs. These yields, a critical determinant of capital costs for businesses and attractiveness of equities, have spiked concurrently with the stock market's tribulations.
The performance of the "Magnificent Seven" will soon face scrutiny through the lens of Apple's impending earnings report, given its substantial influence as the largest U.S. company by market value. The broader market's reception to earnings reports from these mega-cap companies has been mixed, with Alphabet, Tesla, and Meta experiencing notable post-earnings sell-offs. Observers like Kim Forrest from Bokeh Capital Partners are closely monitoring the potential market saturation for Apple's products and consumer demand for new releases, which could have significant repercussions for the S&P 500 due to Apple's hefty 7% weighting in the index.
Investors' strategies vary within the septet of tech behemoths, with preferences being influenced by the companies' leverage to specific trends, such as Nvidia and Microsoft's connection to artificial intelligence. While Allspring Global's Thomas Ognar expresses an overweight position in Amazon and Meta, recognizing cost control benefits and business improvements, the enduring characteristic uniting these seven titans is their colossal data accumulation, a competitive edge that has bolstered their market performance despite this year's challenges.
This article was originally published on Quiver Quantitative