As seen in recent years, seven mega-cap technology companies have been the pervasive driver of S&P 500 earnings growth and returns. Several of them continue to impress, a point reinforced last week as Alphabet, Amazon and Meta all reported expectation-beating first-quarter results. But the story of seven stocks moving in unison to dominate large cap indices may be reaching its end.
The "Magnificent Seven" was always inspired branding (a nostalgic reference from a popular 1960s Western movie). Where clunky precursors like “FAANG+,” “FANMAG,” and “MAMAA” never rolled off the tongue, the Mag 7 had flair and captured something real—exceptional platforms united by product dominance and explosive earnings growth—and the label stuck.
After nearly three years, however, the catchy branded concept looks like it has run its course. The Mag 7 story no longer reflects how these companies are actually behaving, and it no longer serves investors trying to make sense of where markets are headed—like many in a storied line of market themes, this basket is becoming unwoven at its seams.
Uncorrelated Returns
The Mag 7's average pairwise correlation, on a six-month rolling basis, has collapsed to 25% this year—its lowest reading since at least 2019, and well below the 75% pairwise correlation reached in early 2023. Year-to-date (to May 5) return dispersion tells the same story. Alphabet, Google’s parent, and Amazon have gained 23% and 15%, respectively, while Microsoft and Tesla are each down 15%, Meta is off 7%, and Apple is treading water. A 38-percentage-point spread in only four months of trading is a striking divergence.
The explanation behind these growing gaps in performance is rooted in fundamentals. Four of the Mag 7 have been sub-bucketed as the “hyperscalers” on the front lines of AI’s rapid rollout, while the other three remain tied toward their legacy businesses of chips, devices, and clean energy. Among the hyperscalers, even their performance is far from uniform. Consider Alphabet and Microsoft specifically: a year ago, the former was written off as lagging badly on AI, while the latter was deemed a consensus winner. That read has inverted—starkly. Further stock-specific churn is likely as investors continually assess adequacy and sustainability of earnings, cash flows, capex, and execution in the coming quarters.
In addition to performance, the Mag 7's claim on dominating the roster of the largest companies in the world is loosening. Broadcom has quietly nudged ahead of Meta and Tesla by market cap; Walmart and Berkshire Hathaway—both now commanding valuations above $1 trillion—may soon do the same.
If Not Mag 7—Then What?
So if the Mag 7 has broken as a reliable mega-cap market barometer, what replaces it? Increasingly, investors should monitor thematic sectors and equity baskets to better assess what is driving markets.
The AI cycle offers an example of a more granular map—baskets of equities that delineate where companies exist within the AI ecosystem—capex build-out, infrastructure, deployment, adoption, integration, or disruption. Each carries a different risk profile, valuation anchor, and macro sensitivity.
That is the framework that generates signal; a simplified basket of seven stocks, increasingly, does not.
Reasons for Equity Resilience
While we believe the usefulness of the Mag 7 moniker has changed, our long-standing conviction on equities broadly has not. Amid a powerful earnings-led cycle, we remain bullish on global equities, partly reflected in our recent upgrade of U.S. large caps.
Indeed, while some may be tempted to view the equity market as overbought as the S&P 500 hits fresh highs two months into an ongoing Iran conflict and continued disruption in the Strait of Hormuz, we believe the data argues otherwise.
Corporate earnings are robust across numerous sectors and geographies, in some areas approaching a run rate in excess of 20% growth, according to FactSet. More broadly for economic growth, our own research indicates AI infrastructure alone is contributing an estimated half a percentage point to U.S. GDP growth. This tailwind of investment is likely to persist for the duration of 2026, as shown by Amazon and Meta recently nudging their capex guidance higher. Demand for AI is also being validated, given signs of near-term capacity constraints and emerging pricing power among AI providers.
Importantly, on geography, non-U.S. equities led by roughly 11 percentage points in the first two months of 2026. Since then, the U.S. has outperformed by around six percentage points—a gap that has persisted even as the geopolitical situation partially de-escalated. What began as a safe-haven rotation is now being driven by the earnings trajectory.
Moving On, Moving Forward
Discipline still matters. This is a front-loaded year. As we move into the second half, fiscal offsets to energy prices will fade, and a prolonged Hormuz disruption would certainly make the economic drag harder to absorb.
Even so, this is not an argument for the sidelines—it is an argument for continued participation, with greater selectivity, as we have frequently argued here before.
A 38-percentage-point return gap within a single branded basket is the market's way of making the same point: the reward is in the differentiation, not the label. The magnificent metaphor had a good run, as did the heroic cowboys in the movie that inspired its creation. But four of those gunslingers never made it to the final reel—and in the end, it was the villagers they protected who won. For investors, the lesson is the same: the label served its purpose, but the real opportunity now belongs to those who look beyond it.
What to Watch For
Monday 05/11:
- U.S. Existing Home Sales
Tuesday 05/12:
- Germany Consumer Price Index
- Eurozone ZEW Economic Sentiment
- U.S. Core Consumer Price Index
- U.S. 10-Year Note Auction
Wednesday 05/13:
- U.S. Producer Price Index
- U.S. 30-Year Bond Auction
Thursday 05/14:
- U.K. GDP
- U.S. Core Retail Sales
- U.S. Initial Jobless Claims