So Meta Platforms (Facebook) is on track to achieve the best ever performance for an American company in a single session. This means the “Magnificent 7”, these 7 tech stocks that still have resources in the American markets in 2023 (Apple, Microsoft, Alphabet, Meta, Amazon, Nvidia and Tesla).
“2024 will be marked by high volatility in the markets and hence we should both favor quality stocks but also go with the flow. And streams will continue to focus on the glorious 7″, Christopher Dembick, an investment adviser at Pictet AM, predicted in mid-January.
They were not wrong, with one exception, the automobile manufacturer Tesla, which is losing ground on the stock market (-26% since the beginning of the year), facing the Chinese competition and the price war ‘ Electric Perhaps we should now talk about the “magnificent 6”, whose capitalization About 11.900 billion dollars, or four times the capitalization of the CAC 40!
At the end of last year, analysts pointed out the extreme concentration of American markets’ performance on a few stocks. The “Magnificent 7” contributed more than 90% of the S&P 500 index’s performance (excluding dividends) last year, while they represent barely 30% of the index (more than a third today). The underlying question is whether these values will continue to play their role as a driver of performance for the American stock market and as a buffer against potential shocks such as a recession or a collapse in the real estate market.
Rate cut cycle
In a rather upbeat environment for the markets, which are still mired in a soft landing scenario for the American economy (which has just been confirmed by excellent employment figures in the United States), the Grand 6 is still in the race. Since January, Meta is in the lead with a 35% increase in its price, followed by Nvidia, the champion of AI chips, which must present its results much later on February 21, and which has increased by 33%. Amazon is up 13.4% since January, Microsoft is up about 9% and Alphabet is steady (+0.25%). Apple is down 3% since the beginning of the year and is considered the weak link of the “Magnificent 6”, because of its exposure to China, which is considered excessive by American investors.
Growth stocks once again benefit from attractive entry points in early 2023 after disastrous 2022 Velocity Positive while markets still expect rates to fall between 100 and 150 basis points over the next twelve months, perhaps with a summer delay for the first cut. In fact the Fed has ruled out a rate cut next March.
This should continue to support the “Magnificent 6” which presents a valuation that is certainly high but not excessive in terms of price/earnings growth ratio. In fact, except for Apple (and of course Tesla), profit growth continues to trend upward. That’s the danger: these are stocks that can’t afford the luxury of letting markets down about their prospects.