Magnificent 7 Stocks Outperform S&P 500 with Nvidia and Tesla Leading

Since 2020, the Magnificent 7 stocks have soared an average of 640%, dwarfing the S&P 500’s 100% gain and now accounting for 34% of the index’s weight, according to Jefferies. Performance within the group varies widely, with Nvidia surging 2,200% and Tesla also leading, while Amazon, the weakest performer, gained 140%.

Jefferies highlights the importance of stock selection, citing a 25% average monthly return dispersion within the group. Over the last five years, these stocks outperformed the S&P 500 in 63% of months, despite a 2022 slump where the Mag7 fell 40% compared to the S&P 500’s 20% drop. The group rebounded strongly in 2023, supported by robust earnings and positive revisions.

Jefferies’ proprietary Mag7 model evaluates growth, revisions, sentiment, momentum, valuation, return on invested capital (ROIC), and R&D versus capex. Backtests show the top-ranked stock delivered a 5.8% average monthly return over five years, outperforming the equal-weighted Mag7 group, which returned 3.4%. In contrast, the lowest-ranked stock averaged 2.6%, yielding a long-short monthly spread of 3.1%.

Currently, Nvidia tops the rankings, while Alphabet stands out as the best anti-momentum value play. Conversely, Microsoft ranks the lowest, and Tesla remains the most volatile due to extreme factor exposure. Jefferies suggests that while the Mag7’s dominance may not be over, the peak of its returns could be behind us.

This article provides insights into the Mag7’s performance and strategic outlook, emphasizing the benefits of informed stock selection for navigating market volatility.