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While they’ve been relegated from top news headlines recently, the “Magnificent 7” US stocks (namely Amazon, Alphabet, Apple, Microsoft, Meta, Nvidia, and Tesla) have declined about 25% on average, and underperformed the S&P 500 Equal Weighted Index by about 15% so far in 2025. This has unwound the outperformance from mid-2024. Their performance has been a material contributor to the underperformance of the Information Technology, Communication Services and Consumer Discretionary sectors.
The Magnificent share prices have now fallen back well below the relative earnings trend, as shown below in our Chart of the week. The relative fall compared to earnings would be larger if we were to exclude Tesla, as its earnings outlook has declined in absolute terms. The other Mag 7 stocks have continued to show positive earnings growth. While earnings forecasts are likely to see revisions in the near term, the Mag 6 (excluding Tesla) are now trading at the lowest valuation relative to the S&P Equal Weighted Index, since at least 2018. From here, earnings growth should be a greater contributor to their future returns.
