Earlier in the year, we wrote a weekly update titled “Mega year for Mega-Cap companies” about the strong performance of the largest S&P 500 constituents. It turns out these companies (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla) now have a fancy new name bestowed upon them by the media, “The Magnificent Seven.” Why are they so magnificent? Let’s take a look.
First of all, let’s discuss their size. These are massive companies, with five of the seven flaunting a market capitalization of over $1 trillion. Moreover, these seven companies have a total market cap close to the combined value of the smallest 400 companies in the S&P 500. The total value puts their blended contribution close to 30% of the whole index. The numbers are astonishing and challenging to wrap your head around.
But their size alone is not what earned them their new title, as these companies have been enormous for some time. No, the financial media gave them their latest title because of how strong the performance has been this year, especially compared to the rest of the index. A picture is said to be worth 1,000 words, so take a look at this chart.
The S&P 7 (The Magnificent Seven) represents the year-to-date performance of these companies, while the S&P 493 shows the rest of the index. The numbers are frankly staggering. The S&P 7 is up almost 60% for the year, which in its own right is highly impressive. But when juxtaposed with the S&P 493, the performance is even more mindboggling. The S&P 493 (or said another way, the S&P 500 without the seven largest companies) is just narrowly above zero for the year. Not only have these companies been propping up the index, but it would be a lackluster year without them.
With all that said, it is still essential to take a step back, open your eyes, and take a long-term view. Remember, no stock, fund, or market moves upward forever. And all stocks, funds, and markets will experience difficult times. So, while these companies have had a great run in 2023 and are the talk of the town, remember it was only one year ago when people couldn’t sell them fast enough. So stay patient, take a long-term view, and try to enjoy the ride.
Economy
- The volatility remains quite strong in equity markets, with the S&P 500 down -2.4%, the Nasdaq down -3.2%, and the small-cap Russell 2000 down -2.3%. It was a light news week, but Retail sales surprised to the upside, driving concerns about rates staying higher for longer.
- U.S. retail sales advanced 0.7% MoM in September, following an upwardly revised 0.8% rise in August and beating forecasts of a 0.3% advance. The data points to robust consumer spending despite high prices and borrowing costs.
- Retail sales excluding autos in the U.S. rose by 0.6% MoM in September, following an upwardly revised 0.9% increase in the previous period and easily beating market expectations of a 0.2% advance. It was the sixth consecutive month of gains.
- The NAHB/Wells Fargo Housing Market Index in the United States fell by 4 points to 40 in October, falling short of the market consensus of 44. It was the third consecutive month of decreases, bringing the index to its lowest since January, as high mortgage rates have heavily impacted builder confidence and consumer demand.
- The number of Americans filing for unemployment benefits fell by 13K from the prior week to 198K on the week ending October 14th, the least since January and well below market estimates of 212K. The result added to evidence that the labor market remains tight, pointing to further resilience to leave borrowing costs at restrictive levels.
Stocks
- U.S. equities were in negative territory. Real Estate and Consumer Discretionary led the decline, while Energy and Consumer Staples outperformed. Value stocks led growth stocks, and small caps beat large caps.
- International equities closed lower for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased 30 basis points to 4.92% during the week.
- Global bond markets were in negative territory this week.
- High-yield bonds led for the week, followed by government bonds and corporate bonds.
