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The Rise of the Magnificent Seven: A Two-Year Reflection

Two years ago, a significant moment unfolded that marked the emergence of what is now known as the “Magnificent Seven.” I vividly remember that time—my wife, Lisa, and I were in Florida soaking up some sun when I unexpectedly found myself in a Target, buying makeup for a Zoom meeting with my colleague, Jeff. This was shortly after the collapse of Silicon Valley Bank, a turn of events that was too impactful for me not to address, despite my own confusion surrounding the unfolding crisis. The priority was clear: I needed to present myself well on camera, and for that, I was grateful for E.l.f. Beauty.

The aftermath of Silicon Valley Bank’s failure ushered in what many referred to as a “mini bank crisis.” At the time, it appeared to be a significant event. Yet, in hindsight, it was more than just the downfall of a few struggling financial institutions; it represented the rise of large-cap tech dominance. This created a dual-stock market scenario: one comprising revered tech giants and the other encompassing the multitude of other stocks. These seven specific tech companies were not merely seen as strong players in their field; we effectively designated them as immune from the market cyclicality that had historically plagued such entities.

These tech leaders—companies that had previously been viewed through a lens of cyclical vulnerability—were granted a newfound status of secular growth, making them attractive to investors even amid widespread economic uncertainty. They had the financial resources, enduring products, and innovative capabilities that seemingly insulated them against the fluctuations of the global economy. In the wake of the mini crisis, focus shifted from the fragility of banks to the seemingly unshakeable strength of these tech giants.

During this turbulent period, market fears were palpable. The recent memory of bank failures haunted investors, and a collective wariness arose regarding the potential ripple effects across the financial system. Reflecting on past crises, including the collapse of Continental Illinois in 1984 and the savings-and-loan crisis of the 1990s, we saw familiar patterns repeating—initial panic inducing a sell-off, followed by a crucial buy-back once stability returned. However, this time felt distinctly different.

As Silicon Valley Bank faced its fate, sellers quickly exited the market, anticipating further turmoil. Yet, in stark contrast to past crises, a peculiar resilience emerged from a select group of stocks, leading to a rally that would birth the “Magnificent Seven.” Companies like Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla emerged as titans that borrowed no stress from the broader market turmoil.

Fast forward to today, we are again observing a downturn, this time catalyzed by political maneuvers, notably by former President Donald Trump, who is intent on challenging a long-standing trade framework that has favored consumer goods. His stance could lead to a recession as tariffs are imposed, raising concerns about the consumer’s capacity to make purchases across various sectors.

In examining the current market dynamics, I cannot help but wonder about the resilience of the Magnificent Seven. Originally, they were deemed capable of thriving in a recession, but recent trends suggest otherwise. The performance of these stocks has been uneven, with only Apple appearing to confront serious earnings challenges. The others, which were once predicted to be impervious to economic downturns, now seem more vulnerable than anticipated.

The contrast between their past and present performance raises critical questions. Initially, there was unwavering belief in their abilities to weather economic fluctuations. Yet here we are again, questioning if the sentiment surrounding their resilience was merely aspirational. Perhaps the excitement surrounding the generative AI revolution—sparked by the success of ChatGPT—was the true driver behind their earlier rally, not just their perceived strength.

Moreover, now more than ever, it seems challenging to find safe havens in the stock market. The consumer discretionary sector is faltering, while elements like transportation and banking continue to show weakness. In these uncertain times, common threads link the current landscape to the past—the hesitance to engage in substantial buying is unmistakable.

As we navigate this financial season, I hold onto the belief that the Magnificent Seven, albeit with different valuations and perspectives, may once again warrant attention as potential safe stocks. Though the economic landscape appears daunting, the possibility of emerging from this downturn with renewed vigor may rest on these tech giants. For now, they remain at the forefront of my investment considerations, awaiting the right moment to reclaim their status as leaders in a recovering market.

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