Year in a word: Magnificent Seven

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(noun) grouping of large tech stocks that has dominated US and global markets

For a short time at the start of 2023, stock markets behaved as recession-obsessed investors expected: badly.

But a drab start quickly gave way to a rally dominated by a clutch of big tech names stitched loosely together through the hot theme of artificial intelligence: Apple, Microsoft, Alphabet, Amazon, Tesla, Meta and Nvidia.

By June, their Magnificent Seven nickname was really starting to stick.

Some element of top-heaviness is a reasonably common feature in US equities, but the Magnificent Seven (or Mag7 for short) have taken that to new extremes.

At around the midpoint of 2023, these stocks had jumped in price by between 40 per cent and 180 per cent, pulling the benchmark S&P 500 index of US stocks up by some 14 per cent, making it one of the strongest starts to a year in two decades. Without the Mag7, however, the index was flat.

Since then, stock market strength has broadened out. Still, Charles Schwab calculates the Mag7 have gained more than 100 per cent this year and account for a massive 30 per cent or so of the index. Without them, the S&P 500 is up 11 per cent; with them, the performance is doubled. Their size is now so pronounced that they do not dominate just US stocks, but a large slice of the performance of global equity markets too.

Investors say this is no rerun of the ill-fated 1999 dotcom boom. Rather, inflows are coming from conservative investors seeking companies that can weather a downturn, stockpickers convinced of the AI revolution, short-termists chasing high-flying stocks and index trackers following a broad index.

The danger, though, is that just one scandal or swipe of a regulator’s pen could hit one stock and inflict pain on investors worldwide.

katie.martin@ft.com