Good morning! Markets will be closed on Thursday in honor of former president Jimmy Carter, who passed away on December 29 at age 100.

Now, everyone knows that Magnificent Seven stocks have shaped the market in their image over recent years. Today’s edition unpacks just how dominant they’ve really been.

Mediocre gains without Big Tech

Power laws rule everything.

Even financial markets. 

It doesn’t take much to dramatically change outcomes, so long as action is concentrated in the right places. The Pareto principle, more commonly known as the 80/20 rule, posits that a tiny number of variables drive the majority of outcomes: 

For our purposes: A small, mighty handful of tech stocks have been responsible for nearly all of the stock markets’ gains the last several years. 

The Magnificent Seven — Meta, Alphabet, Tesla, Nvidia, Apple, Amazon, Microsoft — have ballooned in valuation and popularity since the pandemic, and investors still haven’t grown tired of them. 

At the start of 2023, this batch of stocks made up 20% of the S&P 500. That proportion turned into 28% a year later.

Now as 2025 begins, the Magnificent Seven hold about a 33% weighting in the benchmark index. 

To DataTrek Research co-founders Nick Colas and Jessica Rabe, the Magnificent Seven will once again determine what sort of year the S&P 500 has, and how large-cap stocks perform compared to small-caps and other countries’ indices.

On a price return basis, the S&P 500 is coming off back-to-back strong years of 24.2% and 23.3% gains, respectively.

In fact, by DataTrek’s calculations, the index would have barely registered a gain without the Magnificent Seven.

“These ‘ex-Mag 7’ S&P 500 returns were worse than the [small-cap] Russell’s gains in 2023/2024, at 15.1/10 percent, respectively,” Colas and Rabe said, adding that other non-US benchmarks also would have outperformed. 

To that point, Roundhill Investment’s Magnificent Seven ETF, which offers equal-weight exposure to the high-flying batch, nearly tripled the returns of the S&P 500 over the last 12 months.

Over the last decade, the market capitalization for the Magnificent Seven has grown close to 800%.

The rest of the S&P 500 has seen its market cap increase by about 150%. 

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