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This article was originally published on Fool.com. All figures are expressed in US dollars unless otherwise stated.
2024 was a great year for the stock market. The S&P 500 is up more than 27% as the bull market continues for the second year in a row. Most of these gains came from “Magnificent Seven” stocks, some of the world’s largest technology and artificial intelligence companies. The market capitalizations of these mega-cap companies range from $1.5 trillion to $3.8 trillion, so a positive move in any of these stocks would have a significant impact on the broader S&P 500 index. It is possible to give Almost all of the Magnificent Seven rose significantly in 2024. With the Magnificent Seven turning into the Fateful Eight, will these stocks be able to carry the market again in 2025?
Magnificent Seven Plus One
In 2023, Bank of America analyst Michael Hartnett coined the term “Magnificent Seven,” a grouping of stocks that have demonstrated superiority from a financial, market, and innovation perspective. produced. Here’s how Magnificent Seven stock has performed through December 25 of this year:
GOOG data by YCharts.
All stocks in the Magnificent Seven outperformed the broader market except for Microsoft. (NASDAQ: MSFT)the Magnificent Seven’s average performance was close to 69%. This is a big deal, since the Magnificent Seven accounts for about a third of the value of the market-cap-weighted S&P 500 and more than 50% of the value of the Nasdaq Composite.
Recently, a group of major tech giants was given a new name on the podcast “On the Tape,” hosted by Wall Street veterans Dan Nathan, Guy Adami, Danny Moses, and Liz Young-Thomas. I did. Their “Fateful Eight” begins with the Magnificent Seven. But it also adds chip manufacturing and software giant Broadcom (NASDAQ:AVGO). Broadcom’s market capitalization recently topped $1 trillion, and its stock price has risen more than 45% in the past month.
What can we expect from the Fateful Eight in 2025?
After a great year, here are the future returns for these eight companies of destiny.
GOOG PER ratio (forward) data by YCharts.
For Tesla, these are very high valuations. (NASDAQ:TSLA) Breaking away from the herd and the alphabet (NASDAQ:Google) (NASDAQ:GOOG) and metaplatform (NASDAQ:Meta) Looks more reasonable. Given this, many market participants are questioning whether the major indexes will continue to perform well next year, given that these eight companies account for the bulk of the value. Still, many Wall Street analysts expect the market to continue to perform well in 2025, although not as well as it has in the past two years.
The market is up about 57% over the past two years, so it seems unlikely that it will be able to repeat such strong performance three years in a row. But the market had soared for five consecutive years in the late 1990s, leading up to the dot-com crash, and we have no idea how big the potential market is and how much of an impact AI is expected to have on our daily lives. Given that, the tailwinds from AI appear to be strong.
I think inflation and Treasury yields will play a big role in the performance of these stocks next year. With the 10-year Treasury yield near 4.6% (as of Dec. 26), investors are certainly concerned about the possibility of a resurgence of inflation in 2025. The Fed expected only two rate cuts in 2025, compared to four. It was predicted in advance. Additionally, some are concerned about the impact that President-elect Donald Trump’s policies will have on the economy.
That said, if labor market and consumer price index statistics improve, further rate cuts could be implemented even without the prospect of a recession, especially in the tech sector, which trades better on a “risk-on” basis. stocks may rise. ” Environment. Other market strategists think the Fateful Eight will be on the defensive due to uncertainty going forward.
I expect the market to experience turmoil in 2025. However, we do not expect Broadcom’s inclusion in the Fateful Eight to have a material impact on the group. Stock valuations are rising, earnings are becoming more challenging, and economic challenges are posed by resurgent inflation and a potential recession. These stocks could still end 2025 at higher levels than they currently are, but we don’t expect them to deliver the same strong performance they showed in 2024.
This article was originally published on Fool.com. All figures are expressed in US dollars unless otherwise stated.
