Navigate Markets with
Code-Connected
Research

Mag 7 Account for 41% of Beta-Weighted Market Cap of S&P 500

How Much Value Does Sector Diversification Offer in our Indexed World?  Post-“Liberation Day” Returns of All Sectors except Energy and Health Care Clustered within Five Percentage Points.

U.S. stocks rebounded from more of their tariff-related losses last week amid conciliatory comments from U.S. President Donald Trump and U.S. Treasury Secretary Scott Bessent, although 10-year Treasury yields dropped only nine basis points, and the U.S. dollar ended the week nearly unchanged.

We are often asked how the U.S.-China trade war will affect the markets and the economy.  We have no way to provide a satisfying answer because tariff rates depend on the whims of two people: Mr. Trump and Chinese President Xi Jinping.  The trade war could be over relatively quickly, even if it has longer-term impacts in other ways, or it could persist for months or even years.  It is this uncertainty more than any specific tariff rates or tariff impacts that is weighing on business and consumer sentiment.

We continue to be amazed at how tightly equity sector returns are clustering.  The graph below shows the returns of the 11 Global Industry Classification Standard (GICS) sectors since Mr. Trump announced his original tariff regime on Wednesday, April 2.  The returns of all sectors other than Energy and Health Care are within five percentage points of one another.

While tariffs have very different impacts on the GICS sectors, prices are moving pretty much in lockstop, pointing to the strong presence of index investors in the market.  The Investment Company Institute reports that 61% of all U.S. equity mutual funds and exchange-traded fund assets are now indexed.

Cautionary Signs for U.S. Economy: Discount Stores and Casinos/Gaming among Industry Leaders, while Personnel Services Fifth-Worst Performing Industry.

Sector and industry returns can offer clues about the U.S. economy’s direction.  Recent market action is not encouraging.  Among the top-performing industries since “Liberation Day” are Discount Stores and Casinos/Gaming, which tend to be more resilient amid recessions.

Meanwhile, the fifth-worst performing industry was Personnel Services.  Staffing companies tend to be a good leading indicator for the labor market, pulling back first when the economy stumbles and ramping up first coming out of a downturn.  The only industries that performed worse than Personnel Services were all related to crude oil.

BetaWatch: Eight of Ten Highest-Beta $2+ Billion Market Cap Stocks in Information Technology.

Our BetaWatch feature highlights the 25 U.S. stocks with a market capitalization of at least $2 billion with the highest betas relative to SDPR S&P 500 (SPY).

Investors seeking beta will find it most readily in Information Technology.  Eight of the ten $2+ billion market cap stocks with the highest beta relative to SPY are technology firms, with mega-caps Tesla (TSLA) and Nvidia (NVDA) among the top five.

Risk Spotlight: Magnificent Seven Account for Staggering 41% of Beta-Weighted Market Cap of S&P 500.

Investors buying broad-based large-cap index funds may be surprised to learn how much both their returns and their risk are being driven by a handful of stocks.

The “Magnificent Seven”–Apple (AAPL), Amazon (AMZN), Google (GOOGL), Meta (META), Nvidia (NVDA), and Tesla (TSLA)–have captivated investors since the COVID-19 pandemic.  Despite their post-election struggles, Nvidia and Tesla have far outpaced the other five stocks in recent years.

More recently, the Mag 7 have regained most of their post-“Liberation Day” losses, led by Google and Microsoft, which have managed to deliver gains since April 2.  Interestingly, Apple has fared much worse than Google and Microsoft even though it too has enormous cash holdings and a strong position in its market.

The Mag 7 have a combined market cap of $16.3 trillion, which is equal to 27% of the market cap of the entire S&P 500.

The impact of the Mag 7 is even more extreme when we consider the beta-weighted market cap, which we calculate by multiplying each stock’s market cap by its beta relative to SPY:

Beta-Weighted Market Cap = Market Cap * Beta

The beta-weighted market cap of the Mag 7 is $24.6 trillion, which is equal to a staggering 41% of the beta-weighted market cap of the S&P 500.  How many portfolio managers are doing anything to mitigate the massive risk of these seven stocks, particularly Nvidia?

The graph below shows the beta of each of the Mag 7 stock relative to SPY in the past two years.  Tesla and Nvidia are in a class of their own, with Tesla’s beta rising above Nvidia’s since the 2024 election, while the betas of the other five stocks generally have been flat to lower in the past two years.