Does a small number of stocks hold up the entire U.S. market? According to some experts, the answer is yes. MarketWatch recently reported that the group of stocks known as the “Magnificent Seven” is indeed keeping the market from crashing, even as geopolitical tensions and macroeconomic trends threaten to bring stocks tumbling back down to earth. These top stocks include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), Meta Platforms (NASDAQ:META) and Tesla (NASDAQ:TSLA). But unfortunately for investors, the elite group of industry-leading companies could soon collapse — and take the market with it.
Does this mean investors should be worried about the immediate future as uncertainty continues to rise? Let’s take a closer look.
Are the ‘Magnificent Seven’ Stocks Falling?
It has been a bad day for the “Magnificent Seven” stocks and an even worse week. Indeed, all seven companies closed in the red today and have also spent the week trending downward. For some, it has been an especially difficult week. NVDA stock has fallen about 10% over the past five days while TSLA stock has dropped nearly 8%. The only member of the “Magnificent Seven” that looks likely to pull back into the green by the end of the week so far is MSFT. Shares of Microsoft are down less than 1% for the past five days.
Why is this small group of stocks so important to the overall strength of the market? A strategist from Bank of America recently calculated that they constitute almost 30% of the total market capitalization of the S&P 500. That may have led us into a dangerous scenario. As MarketWatch reports:
“According to Torsten Slok, chief economist at Apollo Global Management, valuations for the top seven stocks in the S&P 500 have become so out of whack compared with the level of Treasury debt yields that a powerful correction is nearly guaranteed, barring a substantial decline in yields.”
Put another way, these powerful companies have risen to such high levels that their growth is more than likely unsustainable. Because they comprise so much of the S&P 500, if they fall, many other stocks will follow suit. Such a scenario would be catastrophic for Wall Street. What’s more, if this type of negative speculation continues to mount, institutional investors may resort to selling off vulnerable assets in order to avoid further losses.
Is a Crash Coming?
Despite the poor performance of the “Magnificent Seven” lately, the news hasn’t been all bad. CNBC host Jim Cramer issued a bullish take on the stock group earlier this month, urging investors to buy in before shares start rising again. As Cramer sees it, while market conditions look volatile, these mega-cap companies have enough cash reserves to make it through a crisis. Of course, the group’s failure to gain momentum since Cramer’s comments hasn’t helped his argument.
As of now, the future of the market remains uncertain. If these stocks don’t start turning around soon, though, it will be hard for investors to proceed with much optimism. There’s still time to avoid a crash, but market conditions need to shift sooner rather than later.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
