The illustrious Magnificent Seven has captivated Wall Street over the previous year, propelling the stock market’s recovery from 2022’s lackluster performance. These seven stocks, celebrated for their dominant market positioning, innovativeness, brand appeal, and financial might, have been the driving force behind the resurgence.
Let’s delve into how an investment in a portfolio holding equal proportions of the Magnificent Seven stocks would have fared vis-a-vis Cathie Wood’s Ark Innovation ETF (ARKK).
The genesis of the Magnificent Seven lies with the renowned FAANG group, spearheaded by the likes of Apple, Amazon, Meta Platforms, Netflix, and Alphabet, which was reinforced with the addition of Microsoft. This group then evolved to include Nvidia and Tesla, affectionately coined as the Magnificent Seven. The moniker was first coined in 2023 and this elite club has since commanded the market with its unrivaled prowess.
Nvidia’s meteoric rise to become the best-performing S&P 500 stock in 2023 underscores the burgeoning influence of AI. Its high-performance chips, a primary force behind most AI software and applications, cement its position in this league. Similarly, Microsoft’s ascendancy to the top of the market capitalization ladder, driven by its advancements in AI and deepening ties with OpenAI, underscores its significance. Amazon’s AI ventures, bolstered by its Cloud business, have also propelled its stock. Conversely, Apple, grappling with subdued demand for its hardware products, has lagged behind its peers.
Tesla, the electric vehicle behemoth, witnessed a buoyant 2021 as it accelerated its volume growth following the launch of the Model Y. However, the broader market’s wane in 2022, compounded by macro and geopolitical headwinds, took a toll on Tesla. Despite strategic price cuts to bolster sales volumes, its margin contraction impacted the bottom line, leading to underperformance.
Amidst Tesla’s downtrend, speculation has emerged regarding its position within the Magnificent Seven.
ARKK, renowned for its focus on disruptive innovation, has Tesla as its second-largest holding, alongside Microsoft. However, Ark made a conscious decision to trim its stake in Nvidia, citing overvaluation.
During the pandemic, ARKK soared high with stocks like Zoom Video Communications, considered as COVID-19 safe bets, only to later recede from their pandemic-induced highs. The ETF endured a prolonged downtrend from February 2021 to the end of 2022 and has since been navigating a period of consolidation at subdued levels.
A comparative analysis reveals that a $700 investment equally spread across the Magnificent Seven would have yielded $2,653.66, translating to a return of 279.09%, juxtaposed with ARKK’s negative 7.80% return.
Invesco QQQ Trust, tracking the Nasdaq 100, closed at $431.99, up 1.03%, while ARKK added 0.30% to reach $47.31.
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