Eruption of the Magnificent Seven… Now ‘Fab 4’ excluding Tesla, Apple, and Alphabet

Despite declines in Tesla and Apple this year, stock prices such as Nvidia have been rising,
with expectations of the upward trend spreading to other sectors… Pointing out ‘rally exhaustion’[Seoul = Yonhap News Reporter Kim Ki-seong] ‘Previously it was the Magnificent Seven, but now it is the Fab Four.’

The Wall Street Journal (WSJ) reported on the 1st (local time) that the so-called ‘Fab 4’ are now leading the upward trend as the Magnificent 7, which have led the New York stock market since last year, are differentiated.

According to WSJ, the Magnificent 7 has recently begun to falter, but the New York stock market is still on the rise.

The S&P 500 index rose 10% in the first quarter, recording its best start since 2019, even though two of its largest stocks fell by double digits.

Apple fell 11% during the period, while Tesla plummeted nearly 30%.

Google’s parent company, Alphabet, rose 8%, but had been trading sideways for quite some time before starting an upward trend over the past three weeks.

On the other hand, the remaining four stocks of the Magnificent 7, NVIDIA, Meta, Microsoft (MS), and Amazon, continued to record large increases, exceeding the increase in the overall market.

Now some strategists are separating these four stocks and calling them the Fab Four.

According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, an index calculation agency, the Fab 4 is responsible for nearly half of the S&P 500 index’s first quarter increase.

In the case of Nvidia, a representative AI beneficiary, it has already risen more than 80% this year after more than tripling last year.

Despite the recent strength, some prices appear to be lower than last year, the WSJ reported.

Nvidia is trading at 35 times projected earnings for the next 12 months, down from its peak of 62 times in May last year. Amazon’s rate is also 40 times, lower than last year’s high of 62 times.

Some investors say the fact that the market is still rising even without companies like Apple and Tesla is an optimistic sign because it means other groups are also participating in the rise.

All sectors of the S&P 500 except real estate rose in the first quarter. The bet is that small-cap, industrial and financial services stocks are surging, giving more parts of the market room to rise.

The optimistic outlook is tied to the economy emerging from a deep recession and hopes that the Federal Reserve will soon move to cutting interest rates, although not as quickly as some investors had hoped.

Additionally, enthusiasm for the future of artificial intelligence (AI) also contributed to the strong performance.

However, some investors are concerned that the gap between large technology stocks could mean the rally is running out, suggesting it may become difficult to make further profits at this point.

In fact, the market capitalization of the S&P 500 has been inflated by more than $9 trillion (1.214 trillion won) since the end of October last year, and the index has already broken its closing price 22 times this year.

Joseph Ferrara, investment strategist at Gateway Investment Advisors, predicted that as the year progresses, investors will move away from large technology stocks and into other sectors. The Magnificent 7 will have lower returns compared to the remaining 493 stocks in S&P.

Jonathan Golub, a strategist at UBS, said the Magnificent Seven’s earnings dominance could be coming to an end, in part because it will be difficult for them to surpass the explosive growth they recorded late last year.