The 'Magnificent Seven' have dominated the stock market this year. That's the bad news.

By Philip van Doorn

Also, how Nvidia's stock valuation stands out and market predictions for 2024

The "Magnificent Seven" stocks have dominated financial media coverage this year and for good reason.

If you are invested in an S&P 500 SPX index fund, such as the SPDR S&P 500 ETF Trust SPY, you have been riding along with a total return for the index of 20.8% through Thursday, with dividends reinvested. This follows an 18.1% decline in 2022. The index was still down 1% from the end of 2021 through Thursday.

But the S&P 500 is weighted by market capitalization. If we weight the index components' returns by their market values at the end of 2022, it turns out that 67% of this year's return for the index have been provided by the "Magnificent Seven" group of stocks, which includes Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Nvidia Corp. (NVDA), Alphabet Inc. (GOOGL) (GOOG), Tesla Inc. (TSLA) and Meta Platforms Inc. (META). Here's a look at the group's performance along with the movement of forward price-to-earnings ratios:

   Company                        2023 total return  2022 total return  Return since end of 2001  % of S&P 500  % of S&P 500 at end of 2022  Forward P/E  Forward P/E at end of 2022 
   Apple Inc.                                   47%               -26%                        8%          7.7%                         6.4%         28.6                        20.5 
   Microsoft Corp.                              59%               -28%                       15%          7.4%                         5.6%         31.7                        23.1 
   Amazon.com Inc.                              74%               -50%                      -12%          3.9%                         2.7%         41.7                        46.7 
   Nvidia Corp.                                220%               -50%                       59%          3.0%                         1.1%         24.6                        34.4 
   Alphabet Inc. Class A                        50%               -39%                       -9%          2.0%                         1.6%         20.0                        16.9 
   Alphabet Inc. Class C                        51%               -39%                       -7%          2.0%                         1.7%         20.3                        17.0 
   Tesla Inc.                                   95%               -65%                      -32%          2.0%                         1.2%         63.2                        22.3 
   Meta Platforms Inc. Class A                 172%               -64%                       -3%          1.9%                         0.8%         19.0                        14.7 
                                                                                                                                                                     Source: FactSet 

The Magnificent Seven now make up 30% of the S&P 500 by market cap. That is up from 21.2% at the end of 2022.

Underscoring how the weighting affects the index's return and this year's influence of the Seven, the Invesco S&P 500 Equal Weight ETF RSP has returned 6.4% during 2023.

Warnings and observations about the "Magnificent Seven" in the bond and stock markets

Over the past two weeks, yields on 10-year U.S. Treasury notes BX:TMUBMUSD10Y have declined, which means demand has been solid, because when bond prices rise their market yields fall. But Ciara Linnane points out that for the Magnificent Seven, bond investors have been net sellers, which could be a warning sign for their stocks. Then again, if we confine the discussion to Apple's bonds, investors have been enjoying the ride.

Joseph Adinolfi shares a warning to investors about the Magnificent Seven, looking back to similar periods of high valuations during the dot-com bubble that burst in the early 2000s and during a period of high valuations that preceded the bear market of 1973 and 1974.

In the daily Need to Know column on Wednesday, Barbara Kollmeyer looks into analysts' forecasts for 2023, in light of the surprise performance of the Magnificent Seven.

This member of the "Magnificent Seven" club stands out

It has now been a year since ChatGPT was made available to the public and helped feed the incredible response and performance of technology stocks. Companies that have been major beneficiaries include Nvidia, which dominates the market for graphics processing units being deployed by data centers to support their customers' rollouts of artificial intelligence, and Microsoft, which has provided the bulk of investment capital for OpenAI, which developed ChatGPT.

Therese Poletti looks back at the first year of this new era for tech.

Getting back to the Magnificent Seven, if you look at the table in the first section above, you will see that forward price-to-earnings ratios have declined for only two of stocks - Amazon.com and Nvidia. But Nvidia's forward P/E is much lower than Amazon's.

Here's an analysis of Nvidia's stock valuation and a look at its expected growth pace through 2025.

And here is a summary of how estimates for sales and earnings have changed recently for the Magnificent Seven, with Nvidia leading the pack.

'Tis the season for prognostication

The year-end flurry of market predictions for 2024 has already started. First, Mark Hulbert looks back at historical returns to calculate how likely we are to see another stock-market rally in December.

Now let's move on to predictions for 2024:

The S&P 500 may sink as low as 3,100 next year, these bearish strategists warnHow stocks, bonds and other investments in 46 categories should perform over the next 10 years, according to BNY MellonDistributed Ledger: Why bitcoin could have a bull run in 2024 and reach a new record highStock investors must 'go against the grain' in 2024 'trader's market,' Wells Fargo saysU.S. stocks set to fall around 8% next year, says JPMorgan. Here's where to hide.Market Extra: What 2024 S&P 500 forecasts really say about the stock marketTop trades for 2024 encircle Big Tech, but not so much the stocks, Bank of America says

ETF news - gold and punishment for meme-stock investors

In this week's ETF Wrap, Isabel Wang looks at the opportunities and risks for investors in exchange-traded funds that focus on gold.

Joseph Adinolfi reports on the closing of an ETF designed to play the meme stock craze.

Auto industry news

Tesla finally delivered a handful of Cybertrucks this week after years of delays. Claudia Assis surveys reactions of analysts on pricing, availability and expected conversion rates for over a million reservations for the new electric pickup trucks.

Also this week, shares of General Motors Co. (GM) soared on Wednesday after the company raised its dividend, announced a large stock buyback plan and made other strategic moves.

More auto industry news:

Ford's stock rallies after guidance reinstated, with new free-cash-flow view above expectationsU.S. November new-car sales seen surging about 10%UAW pushes to unionize workers at Tesla, Toyota and other carmakersLucid's stock catches a downgrade as Needham frets about demandKelley Blue Book: The 2024 Ford F-150 Lightning review - pricing, range, performance and more for the all-electric truck

Retirement planning

Alessandra Malito writes the Help Me Retire column. This week she responds to a reader who is 53 and considering early retirement. There are many numbers to juggle and health insurance to worry about.

Here is a concern for retirees and their families: This is the season for scams - what older Americans need to watch out for this month.

And Beth Pinsker has something for retirees to think about as we near the end of 2023: Are you taking an RMD? 10 smart things you can use it for right now.

Career advice at holiday time

It is never a good time to lose your jobs, but holiday-season layoffs are common. In the Help My Career column, Zoe Han shares advice on how to take advantage of unique opportunities in the employment market at this time of the year.

Quite a week for Disney

The chart above shows total returns for Walt Disney Co. (DIS) and the S&P 500 since the end of 2021.

On Thursday, Disney declared a dividend of 30 cents a share, for its first such payout since it suspended dividends at the start of the Covid-19 pandemic in 2020. That will lead to an annual yield of 1.29%, based on the closing share price of $92.69 that day.

On Tuesday, Disney CEO Bob Iger spoke at the New York Times' DealBook Summit in New York and said he had not been seeking a return to the job before being asked by the company's board of directors to come back.

Iger also backed off from recent comments about selling business units, also discussing the reasons for the company's recent difficulty with movie ticket sales, as Jon Swartz reported.

Related news:

Disney names Gorman, Darroch to boardAMC shares continue their tumble after Disney does not get its box-office 'Wish'Activist investor Nelson Peltz seeks seats on Disney board

Other company news

The fashion retailer Shein has filed for an initial offering in the U.S., the Wall Street Journal reported on Monday. The company is based in Singapore but was founded in China.

This is why Schein may face some political difficulties with its IPO, as Victor Reklaitis reports.

Also this week, Dollar Tree Inc. (DLTR) reported third-quarter earnings on Wednesday that came in below analysts' expectations. But after an initial decline, the company's share price reversed and ended the day with a 4% gain for the day, before tacking on another 2% gain on Thursday. Dollar Tree in its guidance said it was attracting more high-income customers, which could lead to growth in higher-margin product categories.

Here's a sampling of this week's coverage in the Ratings Game column:

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12-02-23 0915ET

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