Here's how remarkably skewed stock market leadership has been
By Elliott Wave International
You may find it hard to believe, but just seven stocks have been holding the stock market up -- at least, mainly.
You may have heard their names a time or two: They are Meta (Facebook), Apple, Amazon, Alphabet (Google), Microsoft, Nvidia and Tesla -- now known as the "Magnificent Seven."
We've been keeping an eye on them for a while. Just to give you a progression of our coverage, let's start with this chart and commentary from the July 2023 Elliott Wave Theorist, which has covered major financial and cultural trends monthly since 1979:
[The chart] shows how skewed the leadership has been. Just 7 stocks account for nearly the entire gain of the S&P Composite index of 500 stocks for 2023, never mind how much they dominated the NASDAQ indexes.
The October Elliott Wave Financial Forecast, a monthly publication which focuses on key U.S. financial markets, offered this updated perspective:
Just seven tech-focused stocks ... known as the Magnificent Seven, are responsible for nearly the entire year-to-date change in the capitalization-weighted S&P 500. The "other" 493 stocks in the index have contributed less than 1% to the S&P's change this year.
The persistent enthusiasm for those well-known big-cap tech names is captured in this September headline (Marketwatch, Sept. 16):
Here's an Easy Way to Make a More Concentrated Play on the 'Magnificent Seven' Stocks
This is also a perfect example of crowd behavior.
Elliott Wave International's coverage of these seven stocks continued with this update from the Nov. 22 U.S. Short Term Update, which provides near-term forecasts for major U.S. financial markets thrice weekly:
The top line on this chart from Bloomberg shows the percentage change in 2023 in the market cap of the Magnificent Seven: Apple, Microsoft, Alphabet (Google), Amazon, Meta (Facebook), Tesla and Nvidia. The bottom line on the chart shows the percentage change in the market cap of the Bloomberg 500, an index similar to the S&P 500, excluding the market cap of the Magnificent Seven. Were it not for seven stocks, the market cap increase in the Bloomberg 500 would be less than the return on short term U.S. T-bills. ... There has never been such a high weighting in the S&P in such a few number of companies.
When investors finally turn sour on these seven stocks, expect the S&P to plunge.
When might that happen, and how do you know the signs to look for?
Just know that Elliott waves directly reflect the repetitive patterns of crowd behavior, and these recognizable patterns can help you anticipate major market turns.
If you're unfamiliar with Elliott waves or need a refresher, read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from that book:
After you have acquired an Elliott "touch," it will be forever with you, just as a child who learns to ride a bicycle never forgets. Thereafter, catching a turn becomes a fairly common experience and not really too difficult. Furthermore, by giving you a feeling of confidence as to where you are in the progress of the market, a knowledge of Elliott can prepare you psychologically for the fluctuating nature of price movement and free you from sharing the widely practiced analytical error of forever projecting today's trends linearly into the future.
You can get free access to the online version of Elliott Wave Principle: Key to Market Behavior by becoming a Club EWI member. Club EWI is the world's largest Elliott wave educational community and it's free to join. A big benefit of Club EWI membership is that you get instant access to a wealth of Elliott wave resources on financial markets, trading and investing without any obligations.
Follow this link to get the ball rolling: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.
This article was syndicated by Elliott Wave International and was originally published under the headline S&P 500: Heard About Those "Magnificent 7" Stocks?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
