The stock market has experienced significant growth this year, and a major contributing factor to this success can be attributed to the Magnificent 7. These seven companies, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, have played a Herculean role in propping up the S&P500. However, despite their impressive performance, some of these companies have faced recent setbacks that have left investors questioning their slip in the first place.
One notable example is Tesla, whose CEO Elon Musk reportedly expressed deep disappointment during the Q3 2023 earnings call. This event resulted in a significant decline in Musk’s personal wealth. Additionally, Tesla has faced challenges with the rollout of its highly anticipated full self-driving capabilities and the delay in the release of its cyber truck. These adversities have caused some investors to lose faith in the once highly regarded Tesla stock.
Similarly, Apple has raised concerns among investors due to its slowing revenue and lower iPhone sales, despite surpassing expectations in other areas. The iPhone has been a cornerstone of Apple’s success for over a decade, so any decline in its performance raises questions about the company’s future growth potential. Furthermore, investors have expressed concerns about Apple’s exposure to geopolitical tensions with China and its reliance on other Big Tech companies like Google.
Despite these obstacles, both Tesla and Apple have managed to recover and even lead a rally that boosted the overall market by an estimated $200 billion in a single day. Many analysts on Wall Street remain optimistic about the future of the Magnificent 7 and believe that these recent hiccups are merely part of the natural ebb and flow of the market.
Looking ahead to 2024, JPMorgan sees the Magnificent 7 as a crucial component of a positive market outlook. The majority of these companies are expected to navigate through the challenges of the earnings period and experience more favorable growth comparisons in Q4. Furthermore, industry experts predict increased demand for their Cloud computing businesses, which sets them up for potential expansion in the coming year.
Both Abby Yoder, U.S. Equity Strategist at J.P. Morgan Private Bank, and Ed Clissold, chief U.S. strategist at Ned Davis Research (NDR), agree that the recent pullback in stock prices offers an excellent opportunity for investors to enter the market. Yoder describes it as a “very attractive entry point,” with many of the Magnificent 7 trading at or below the market. Clissold points out that historical trends indicate a year-end rally following a fall pullback, as investors sell off underperforming stocks and focus on winners.
In conclusion, while the Magnificent 7 may have experienced some setbacks, their strong performance throughout the year suggests that they will continue to drive the market in 2024. As long as the economy remains healthy and interest rates stable, these companies are positioned to thrive and maintain their market dominance. However, investors should remain mindful of potential geopolitical and regulatory risks that could impact their success in the long run.