The S&P 500's Magnificent Seven stocks aren't looking so magnificent now. Their August sell-off is costing investors big time.
The collective market value of the Magnificent Seven stocks, including Apple, Microsoft and Nvidia, plunged $632 billion just in August, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. These seven stocks combined account for more than 50% of the S&P 500's market value loss in the month.
The Magnificent Seven stocks' drop comes weeks after analysts like Morningstar warned they were mostly overvalued. Investors who piled into these seven stocks this month, also including Tesla, Meta Platforms, Alphabet and Amazon.com, are paying for it now.
But rather than worrying, many are seeing the rally including more types of stocks as a sign of a healthier S&P 500.
"I had addressed the widening participation of U.S. stocks beyond the Magnificent Seven and a broadening stock participation in this year's rally would provide a healthier and more sustainable bull market for 2023," said Daniel Morgan, senior trust portfolio manager at Synovus Trust.
Role Reversal For Magnificent Seven S&P 500 Stocks
It's remarkable how fast the fortunes of the Magnificent Seven has changed. They're now driving losses, not gains.
Five of the seven stocks are responsible for the largest drops in market value in the S&P 500 this month. Take Apple, for instance. Shares of the gadget maker are down more than 9% since the start of the month. And that's a big deal when you're talking about a company worth $2.8 trillion, and one of investors' top holdings.
Apple's market value plunged $315 billion alone. That single-handedly accounted for 31% of the S&P 500's loss during the month of August so far. Investors continue to puzzle over why they're paying a market premium of nearly 30-times past earnings on a company that's posted profit declines in the past three-straight quarters.
Similarly, shares of Microsoft are down 4.6% this month. That subtracts $114 billion in market value from the company. Much hinges on the company's ability to cash in on AI and its partnership with ChatGPT. Analysts think the company's profit will rise more than 12% in 2024.
Not All Magnificent Seven Suffer
The Magnificent Seven stocks as a group are suffering this month. But individually, not all of them are.
Amazon.com is the standout, on the upside. Shares of the online retailer are actually up more than 5% this month. The company, with a nosebleed 109 price-to-earnings ratio, added $76.9 billion in market value in the month.
What's driving Amazon? Analysts are actually increasingly bullish on the online retailer's earnings future. Analysts in the past 30 days bumped up their earnings forecasts for the company by 29% and 21% in the next quarter and next year, says Jessica Rabe of DataTrek Research. Those gains in expectations outperform those of all other Magnificent Seven stocks.
But now, big profit gains are counted on as these giant stocks try to keep rallying. These stocks are still up an average 87% this year, even following the August sell-off.
"Whether or not U.S. Big Tech can drive the S&P higher from here, like most of this year, will come down to further upside earnings revisions and better expected 2024 earnings growth than the broader U.S. (stock) market," Rabe said.
Magnificent S&P 500 Meltdown
Change in Magnificent Seven market values in August
| Company | Ticker | Market value ch. ($ billions) | Stock since 8/1 |
|---|---|---|---|
| Apple | -$315.2 | -9.1% | |
| Microsoft | -113.9 | -4.6 | |
| Nvidia | -139.8 | -12.2 | |
| Tesla | -58.3 | -7.1 | |
| Meta Platforms | -54.2 | -6.5 | |
| Alphabet | -27.1 | -1.5 | |
| Amazon.com | 76.9 | 5.1 |
