Mag 7 Lagged the S&P 500 in Q3: A First Since Q4 2022

SPY outperformed MAGS in the third quarter, as tech cedes market leadership.

In the third quarter of 2024, the "Magnificent Seven" stocks, which include major tech companies like Apple, Microsoft, Nvidia, and Tesla, struggled compared to their strong performance earlier in the year.  

These mega-cap stocks, which had driven much of the S&P 500’s gains in the first half of 2024, rose 5.70% in Q3, as measured by the Roundhill Magnificent Seven ETF (MAGS), while the market benchmark gained 5.75% in the quarter, as measured by the SPDR S&P 500 ETF Trust (SPY). 

This contrasted sharply to the outperformance of these seven stocks in the earlier part of the year and marked the first quarter that the Mag 7 did not outperform the broader market since Q4 2022.

Magnificent Seven Stocks’ Fall From Grace

Here are some general factors that might have contributed to the underperformance of Mag 7 stocks relative to the S&P 500 in the third quarter of 2024: 

• Market rotation: Investors may have shifted their focus from growth-oriented tech stocks to value stocks or sectors, such as utilities and consumer staples, that were perceived as more undervalued or less susceptible to economic downturns. 
• Profit-taking: After significant gains in previous periods, investors might have decided to sell some of their positions in these tech giants to secure profits. 
• Concerns about economic growth: If there were concerns about a potential economic slowdown or recession, investors might have become more cautious and shifted their allocations away from riskier growth stocks. 
• Company-specific factors: Individual companies within the Magnificent 7, including Tesla, Apple, and Amazon, have faced challenges such as disappointing earnings reports, product delays, underwhelming product releases, regulatory issues, or increased competition. 
• Valuation concerns: Valuations of these tech stocks are increasingly perceived as overly high relative to their underlying fundamentals, causing concern among investors and potentially leading to more hesitance to buy or hold them. 

Mag 7 Stocks Q4 Outlook

Looking ahead to Q4, analysts expect varied performance within this group. Companies like Nvidia and Microsoft, which are heavily involved in AI, continue to see strong demand and growth potential, particularly in AI-related sectors. However, macroeconomic headwinds, such as tightening monetary policy and geopolitical risks, could further challenge their valuations. Apple, for instance, is facing slower iPhone sales, which might continue to affect its stock price in the near term. Meanwhile, Tesla could face pressure from increased competition in the electric vehicle market. 

Despite these challenges, the long-term prospects for these stocks remain positive, particularly due to their strong positions in transformative technologies like AI, cloud computing, and autonomous vehicles.