2023 and the Magnificent 7

• 2 min read

Here’s why the stock market in 2023 experienced one the most lopsided and bizarre return years on record, and what to expect in the future.
Here’s why the stock market in 2023 experienced one of the most lopsided and bizarre return years on record and what to expect in the future.

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Here’s why the stock market in 2023 experienced one the most lopsided and bizarre return years on record, and what to expect in the future.

The stock market in 2023 had one of the most lopsided and bizarre return years on record and is likely to close out near the highs of early 2022—a two-year trip that saw a 25% drop before rallying back.

Only now is the equity market recovering from an earnings recession in which profits fell 5-10%. It could have been worse had the economy also endured a recession. An average one most likely would have clipped another 10-20% from profits.

The market’s strength has been buoyed by the Magnificent 7 (Mag7) stocks—Apple, Amazon, Microsoft, Alphabet (Google), Meta (Facebook), Tesla, and Nvidia— which drove most of the S&P 500 returns for the year.

The Mag7 began to leave the other 493 behind in March following the collapse of Silicon Valley Bank over unfounded fears of a banking-sector crisis. Small, mid-sized and foreign stocks also lagged the Mag7 throughout the year. But the massive market rally that started in late October is narrowing that performance gap, a trend that is likely to continue going forward.

If the Federal Reserve manages to orchestrate an economic soft landing of taming inflation without causing a recession, it is likely that earnings estimates are too low for the other 493, small- and mid-caps, and even foreign stocks. They currently are priced for a harder landing. Conversely, earnings expectations for the Mag7 appear to be too high.

For investors, the most prudent course of action is to stay globally diversified—in the absence of a Mag7 market mania, the performance gap between the Mag7 and everything else should narrow.

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This information is for general information use only. It is not tailored to any specific situation, is not intended to be investment, tax, financial, legal, or other advice and should not be relied on as such. AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.

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