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Exactly a year ago, my commentary revolved around the nearly decade-long dominance of the S&P 500 index and the fears that it was propped up by a handful of stocks, collectively known as FAANG, which then morphed into the MAG7. While I understood the concern, I thought it was a bit overblown, as the index consists of 500 stocks, and others can pick up the slack if some of the MAG7 names show signs of cracking.
It is worth noting that the MAG7 contributed to 50%+ of the S&P 500 gains in 2024 and ~63% in 2023. This concern is what worried investors coming into this year. The concern wasn’t just the small number of stocks (seven), but more specifically that they’re in the technology sector and trade at lofty valuations. Let’s take a look at return ranges for these stocks over the past several years.
2020: All netted returns ranging from +30% (Google) to +743% (Tesla).
2021: All netted returns ranging from +2% (Amazon) to +125% (Nvidia).
2023: All netted returns ranging from +49% (Apple) to +239% (Nvidia).
2024: All but Microsoft (+13%) netted returns ranging from +30% (Apple) to +170% (Nvidia).
During those years, the S&P 500 returned 18%, 28%, 26% and 25%. A bulk of the credit can be attributed to the performance of the MAG7. So far, so good, right? Well, 2025 paints a different picture:
2025 (through 7/22): Only Nvidia, Meta, and Microsoft have returned over 4%, while Apple and Tesla have declined -14% and -18%. In fact, not one has returned greater than 25%, which is significantly lower than the prior years above.
The likely conclusion here is that the S&P 500 is struggling, given the underperformance of the MAG7 compared to prior years. But the reality? The index is up ~8% as of the writing. What’s even more impressive is that four of the seven stocks are significantly underperforming. In fact, none of the stocks in the MAG7 cracked the best 25 performers of the S&P 500 this year, which did not happen in any of the other years above.
You may be wondering why I left out 2022. Well, that was a down year for equity markets. As shown on the chart below, these stocks lost between -26% (Apple) and -65% (Tesla). Four of the seven lost at least 50%! And how did the S&P 500 fare? It lost only -18%, which is pretty remarkable and helps paint the picture that the MAG7 stocks don’t “run the market.” Many of the other 493 stocks picked up the slack, as usual, and the index avoided what could have been a disaster.
Digging a little deeper, the top five performing stocks in 2022 were:
Constellation Energy (CEG): +129%
Occidental Petroleum (OXY): +117%
Hess (HES): +94%
Texas Pacific Land Trust (TPL): +92%
ExxonMobil (XOM): +87%
This is where diversification shines. The stocks listed above are energy companies, which thrived during the inflationary surge and helped offset the massive declines in the MAG7 names. It’s extremely rare for all 11 sectors to post a negative return in the same year.
So what’s the takeaway? Of course the performance of the MAG7 matters. They currently represent ~35% of the S&P 500, which is the highest concentration on record and well above the ~22% historical average for much of the past 35 years.
It’s safe to say that a lot rides on these stocks, but it’s also safe to say that as some stocks slip, others will outperform. The underlying stock percentages of the index will increase as others decrease. This is how efficient markets function. It doesn’t mean smooth sailing is ahead, but risk tends to adjust and work itself out over the long run.
Stay the course.
Feel free to discuss your situation with our financial planning firm.
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