Magnificent 7 Is Dying
- 2h
- 5 min read
Last week, I warned to be careful with small-cap stocks, and they actually did rise slightly this week.
A Look at the Market
The State Street SPDR S&P 500 ETF (SPY) did bounce back from a big sell-off earlier during the week to end up for the week, though it is down month-to-date. It has increased in price by 8.8% and has returned 9.1% with dividends. Bonds remain under pressure, with iShares Core US Aggregate Bond ETF (AGG) now returning just 0.2% with dividends included, which is below the return on cash.
The big story this week was the largest IPO ever, SpaceX (SPCX). I have no interest at all in this stock, which is perhaps smart or perhaps stupid. I have limitations on my time, as we all do, and I can't evaluate every stock. I do follow about 100 stocks closely (plus the 85 ETFs that I track closely), but 100 stocks isn't even 20% of the S&P 500 stocks, especially since my watchlist has many stocks that are not in the S&P 500. I am not a fan of Elon Musk, though I do cover Tesla (TSLA). I may cover SPCX in the future, but I don't right now. I do have a very negative opinion on Musk, though I had it before I read an awesome book on him by Walter Isaacson. After that book, I understood him better.
So, what is more important for me than spending my time analyzing SPCX? Well, trying to anticipate the impact on the market, which could range from zero to a lot. I don't know the answer yet, but I understand that not only was it the largest IPO ever, the market cap is very high. One of the big stories this year has been the weakening of the Magnificent Seven (or the Elite 8, which adds Broadcom) relative to smaller stocks. In June, the S&P 500 has dropped 2%, though it has increased in 2026 so far. Here is how the overall market as measured by the S&P 500 has done relative the the Elite 8:
Three of the Elite 8 are down in 2026, and two are up less than the S&P 500. The other three are doing better, but not by that much. The Elite 8 have returned an average of 0.4%, which is better than the Magnificent 7, which have returned an average of -1.1%.That's right, the market has made an all-time high and pulled back slightly, but the Magnificent 7 are down in 2026. Large stocks are lagging!
Here are the Elite 8, sorted by market cap (per Koyfin):
The S&P 500 is dominated by Technology stocks, which represent currently about 35%. The funny thing about this to me is that Standard & Poor's doesn't consider Alphabet (GOOG), Amazon (AMZN), Tesla (TSLA) or Meta Platforms (META) to be Technology stocks. The Elite 8 represent 35.4% (Magnificent 7 are 32.7%).
The Magnificent 7 took off in 2023 and have soared. The Elite 8 are all above $1 trillion in market cap now, but SpaceX is bigger than three of them right now:
Berkshire Hathaway (BRKB) is also over $1 trillion, but I am not including it here, because it would not make the Top 10. Micron Technology (MU), which is up 244% so far in 2026, does. What will be the next big name? Magnificent 7 is a very popular name, but Elite 8 has been gaining traction. There are other names too, like FAANG, which is four of these plus another one, and MANGOS, which includes a few of these but also AI-related (two that have not yet gone public, Anthropic and OpenAI).
So, it's not just SPCX that is messing up these very common names for the mega-caps. The largest name, NVIDIA (NVDA) is a semiconductor company, but it is also a software company. AVGO and MU are semiconductor companies. There is a lot of semiconductor exposure in this Top 10. Another way to look at the megacaps will be AI-related, and a lot of these companies above and the two pending IPOs are tied to AI. Going forward, investors, analysts and the media will likely focus on the Top 10 and get away from names like Magnificent 7 or Elite 8. There is already an index that I follow closely, the OEX, which is the S&P 100, and I do follow some mega-cap ETFs.
So, my article today is not about how careful one should be with semiconductors, as I have written about recently, or how one should be careful with mega-caps, as I have been saying for a while. It is not about whether readers should buy SPCX or short it. What is it about? Well, I like to discuss big changes, and I like to explain why I expect certain outcomes. What is going to change is the way investors denote the largest companies. I continue to expect that the big run in the very largest stocks will end, and it looks like it has. Investors should be prepared for the very largest companies to not all move in tandem,
ETF Model Portfolio Update
This ETF model portfolio, which is measured against 60% SPY and 40% AGG, is up relative to its benchmark. This week, I did several trades, which were published on here instead of on my Seeking Alpha blog.
I also posted two articles at Seeking Alpha about ETFs:
An article about a stock, Bark, Inc. (BARK) was posted at TalkMarkets:
Going into the week, my equity exposure totaled 32.2%, spread out across four ETFs. Here is what I did this week:
Monday: I reduced ProShares R2000 Dividend Growers ETF (SMDV) and added to State Street Utilities Select Sector SPDR ETF (XLU)
Tuesday: I reduced SMDV again to add to XLU again as well as to boost iShares Bitcoin Trust ETF (IBIT), and I trimmed ProShares S&P 500 Dividend Aristocrats ETF (NOBL) to add to XLU.
Thursday: I extended my TIPS exposure again, reducing Vanguard Short-Term Inflation-Protected Securities Index ETF (VTIP) and increasing PIMCO 15+ Year US TIPS Index ETF (LTPZ). I also trimmed IBIT and boosted Vanguard Short-Term Treasury Index Fund ETF (VGSH).
Here is the current model portfolio, which now has 30.9% equity exposure in four ETFs and fixed income exposure in three ETFs that totals 60.8%:
I have been wrong this year, at least so far, as stocks keep rallying. The rally has been until Friday a week ago, when they had their worst day of the year. Despite being underweight stocks all year, my return relative to the 60/40 index is higher by about 5% in less than six months. This is not due to superior returns on my current equity ETFs, as the very best one, SMDV, has increased in price by 10.7%. My TIPS have done okay relative to AGG, but they aren't exactly boosting the return. VGSH isn't helping too much either. So, what has it been? I have had positive returns from two ETFs, one of which I no longer hold and one of which is down a lot year-to-date that I just repurchased recently, and there has been some good trading. I plan to give a performance attribution after the end of Q2 for this quarter.
How Can I Help You?
I enjoy analyzing ETFs and stocks, and I like sharing my thinking in writing. I am working on starting a subscription service at Seeking Alpha. What things would you as an investor like to see offered?
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My ETF articles at Seeking Alpha, written under the alias The Intelligent ETF Investor, share a lot of my ideas.
