Short Interest Hits All-Time Low
The “Magnificent Seven” stands as an unstoppable force on Wall Street, with short interest in these companies reaching an all-time low. These seven companies, comprising some of the most valuable publicly traded entities in the U.S., now only represent approximately 1% of their collective market capitalization.
Dominating the Market
As depicted in the chart below, the combined market capitalization of the Magnificent Seven – Apple Inc. AAPL, +0.59%, Microsoft Corp. MSFT, +0.74%, Alphabet Inc. GOOGL, +0.66%, Amazon.com Inc. AMZN, -0.44%, Nvidia Corp. NVDA, +1.35%, Meta Platforms Inc. META, +0.30% and Tesla Inc. TSLA, -0.03% – currently hovers around $11.3 trillion. Notably, Apple alone accounts for over $2.8 trillion of this colossal sum (according to FactSet data).
Questioning the Buying Potential
Financial analysts ponder the identity of potential buyers for these mega-cap companies as their valuation skyrockets in comparison to the remainder of the market. As the Magnificent Seven spearhead all of the S&P 500’s growth in 2023, offsetting losses suffered by other companies in the index, investors wonder how sustainable this trend truly is.
Overweight Positioning
According to Bank of America’s data, long-only funds exhibit an overweight position on each member of this influential group, with the exception of Apple and Tesla.
The Magnificent Seven: Strong Performance in Uncertain Times
Many Wall Street strategists are confident that a group of companies, known as the Magnificent Seven, will continue to outperform in the market. Despite concerns of a possible recession, the strategists at Capital Economics believe these companies have the potential to defy the odds due to their strong balance sheets and prospects for earnings growth.
In a recent written commentary, the Capital Economics team expressed their pessimistic view of the U.S. economy. They expect equities in the country to face significant challenges in the near term. However, they pointed out that the biggest components of the S&P 500, which include the Magnificent Seven, might fare better than others.
One key factor contributing to the bullish outlook for these companies is the strong earnings forecasts. In particular, the expected earnings growth for the Magnificent Seven over the next year significantly surpasses that of the rest of the S&P 500. This optimistic forecast is partly driven by the booming artificial intelligence industry.
On Wednesday, U.S. stocks displayed a mixed performance, but the tech-heavy Nasdaq Composite managed to keep pace with the S&P 500. The Nasdaq Composite saw a modest gain of 0.1%, closing at 13,650.41, according to FactSet data. Meanwhile, the S&P 500 experienced a similar increase of 0.1%, reaching a level of 4,382.80. The strong performance of the Magnificent Seven members helped offset weakness in other Nasdaq stocks, with Nvidia and Microsoft standing out as top performers in this group.
In a highly uncertain economic landscape, these companies are capturing attention with their resilience and potential for continued growth. Despite challenges, they remain at the forefront of market performance and display the qualities that make them truly magnificent.