The S&P 500 set over 50 record closing highs in 2024.
And the “Magnificent 7” drove an outsized portion of the gains.
Recall that Mag 7 companies include Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
Those seven stocks accounted for just over half of the S&P 500’s 23% gain in 2024.
And their concentration in the index hit the highest levels ever. The S&P 500 is weighted by market capitalization. That means companies with the highest market value grab a larger share of the Index.
Every member of the Mag 7 sports a market value of over $1 trillion. The largest, Apple, has a market cap of $3.5 trillion.
Those seven stocks made up 33% of the S&P 500 at the start of this year. That’s incredible pressure to put on such few stocks.
But cracks are forming in the foundation supporting the Mag 7’s gains… And that should concern you given their stock market dominance.
So today, let’s look at what these cracks mean for volatility in the market… and the trading strategy that can help you take advantage…
Priced for Perfection
Many analysts express concern about the weight of the Mag 7 stocks in the S&P 500. They say such a high concentration marks a top in the market.
Yet by some measures, the Mag 7’s surging market value is justified. The group led the earnings recovery coming out of 2022’s bear market.
In 2023, Mag 7 earnings per share jumped by 31%. The rest of the S&P 500 collectively fell by 4%. Last year saw Mag 7 earnings gain another 35% while the other companies in the S&P grew earnings by just 3%.
That’s impressive growth, no two ways about it.
But signs are emerging that this “hypergrowth” phase might be in the rearview.
For example, most of the Mag 7 have reported their financial results for the fourth quarter 2024. The group has a history of surpassing estimates from Wall Street analysts.
But this is the first quarter in nearly two years when the Mag 7 hasn’t delivered a positive sales surprise.
With the Mag 7 priced for perfection, that could usher in a new era of volatility.
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A New Era of Volatility
For the Mag 7 to justify its weight in the S&P 500, it needs to keep delivering on growth expectations.
The missing revenue surprise could be the first sign that momentum is stalling out.
And since these stocks currently make up a record share of the S&P 500, that has broader implications for the market.
Questions about their growth prospects and financial outlook could cause shares to come crashing down.
Remember DeepSeek? Fears over cheaper AI models caused Nvidia (NVDA) to lose nearly $600 billion in market cap in a single day.
That shows Mag 7 stocks are priced for perfection… and anything less could mean trouble. Their share prices are vulnerable, as we’ve already seen.
Of course, that doesn’t mean the whole market is about to come crashing down. The same day that DeepSeek sent NVDA careening lower, the Dow Jones Industrial Average finished with a gain.
And the AI trend remains in full swing. Just four mega-cap tech companies are plowing $315 billion into capital expenditures this year… much of it driven by the AI buildout. (That figure is nearly eight times higher than levels seen in 2017.)
But the bottom line is this… Market volatility is jumping this year, and you should expect more sharp swings ahead. These stocks may not go up in a straight line anymore.
Uncertainty around the Mag 7 and other AI plays will unnerve many investors… but create opportunities for traders.
That means you need to adapt your strategy to take advantage of the choppiness in the market.
In fact, this is becoming the ideal environment for a short-term trading strategy that can deliver outsized gains when volatility picks up.
“0DTE” is gaining popularity among retail traders. Also known as “zero day” trades, this strategy can let you profit from quick market swings…
As I’ve been digging into this strategy, my beta trades have shown us some impressive results… like 30% in less than a day and even 121% in less than a day.
That’s one reason I’m excited to bring this strategy to my readers. These trades can help us profit from the Mag 7 stocks – even if they go through a dip. And this can be a fantastic way to pull out more AI gains from the market…
So I’d like to invite you to attend the AI Overnight Gains Summit on February 19. That evening, I’ll take you through everything you should know before getting started with 0DTE… and some of the places I see the biggest opportunity.
Simply go right here to add your name to the guest list with one click. I look forward to seeing you then!
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict