Magnificent Seven stocks underperform S&P 500

What happened: The "Magnificent Seven" tech stocks—Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla—have underperformed the S&P 500 since April 2023. These seven companies, which have driven U.S. market gains in recent years, have collectively gained $4.8 trillion but have become a risk to broader market indices due to their outsized influence. Five of these stocks will report earnings this week, with Microsoft and Amazon's total capex spending being the most crucial number for investors.

Market impact: The heavy dependence on these seven stocks has reduced the diversification of S&P 500 index funds. While these companies have faster growth rates and higher margins, their underperformance has dragged the broader market down. Berkshire Hathaway, which does not hold these tech stocks, has underperformed the S&P 500 this year, further highlighting the market's reliance on the Magnificent Seven.

What to watch next: Investors should closely monitor the earnings reports of Microsoft (Wed, May 24), Amazon (Thu, May 25), and Alphabet (Thu, May 25). Additionally, they should keep an eye on the overall market reaction to the "Magnificent Seven" stocks' performance, as any significant underperformance could lead to a broader market correction. Lastly, the upcoming AI integration and growth strategies of these companies, particularly Amazon, will be crucial to watch, as they could drive future stock performance.