The Magnificent Seven spent two years outperforming the market while financial journalists pretended this was sustainable. Now analysts predict the rest of the stock market might actually make money this earnings season. Revolutionary stuff.
This is what passes for insight on Wall Street. Seven companies go up while everything else flatlines, and when the pattern threatens to reverse, we get breathless coverage about "breadth improvement." The rally might broaden. Stunning analysis. Next they'll discover that stocks sometimes go down.
Retail traders bought tech at the top because some guy on YouTube told them AI would make them rich. They ignored every other sector because diversification is for cowards who hate money. Now those ignored sectors might outperform, and the same traders will panic-sell their tech positions at exactly the wrong time. It's like watching someone fail the same test seven times and blame the pencil.
The premise here is that non-tech companies will report better-than-expected earnings growth relative to the giants. Which means the Magnificent Seven will merely print obscene profits instead of historically obscene profits. This counts as underperformance now. Apple could beat estimates and still disappoint because it didn't cure cancer in Q3.
Breadth weakness sounds like a medical condition. Your portfolio has been diagnosed with breadth weakness. Take two index funds and call me when you've accepted that stock-picking is astrology for men.
The beautiful part is none of this matters. Earnings season happens four times a year. The narrative flips every ninety days. Last quarter it was tech dominance. This quarter it's broad market strength. Next quarter it'll be something else equally meaningless. But retail will trade on every headline like it's the Rosetta Stone of market timing.
The Magnificent Seven became the Magnificent Seven because they went up a lot. That's the entire designation. Now they might go up less than stocks that went up less before. Truly the market works in mysterious ways that definitely aren't just random noise dressed up as patterns.
Photo by on Unsplash
Leave a Comment