Key Takeaways
- The megacap tech stocks that make up the “Magnificent Seven” have led the market’s recovery over the past month.
- That’s a big change from earlier in the year, when “old economy” stocks like financials and healthcare led, while tech fell out of favor.
- Strategists say Big Tech offers investors structural advantages over the rest of the market, and investors often view it as a safe haven.
It’s suddenly looking very 2023 in the stock market.
After falling out of favor in the first quarter, the megacap tech stocks that make up the “Magnificent Seven” have fueled the market’s recovery from sharp losses posted after President Donald Trump’s tariff announcement. Stocks have climbed nearly 14% since bottoming out on April 8 (the day before Trump announced a 90-day pause on many of his new tariffs).
Prior to this bounce, technology stocks spent the first three months of the year lagging the broader market by an ever-widening margin, as investors leaned into a dramatic rotation that favored value over growth and “old economy” stalwarts like healthcare and financial services over Big Tech and the artificial intelligence trade. But since April 8, the Morningstar US Technology Index has been the largest contributor to the Morningstar US Market Index‘s total return. The tech sector has climbed nearly 20.0% and is responsible for 5.8 percentage points (or more than 40%) of the total 13.8% gains.
The five largest individual contributors to the market’s total return were Microsoft MSFT, Nvidia NVDA, Apple AAPL, Broadcom AVGO, and Meta Platforms META. Besides Broadcom, these are all members of the Magnificent Seven. The remaining three members—Amazon AMZN, Alphabet GOOGL, and Tesla TSLA—were not far behind.
Meanwhile, the first quarter’s leaders have fallen behind. UnitedHealth Group UNH, PepsiCo PEP, medical instruments firm Becton Dickinson BDX, and drugmaker Bristol-Myers Squibb BMY were the largest detractors from the market’s return since April 8, according to data from Morningstar Direct.
Why Did the Magnificent Seven Rally?
Strategists say that while the resurgence of the Magnificent Seven was a major shift from the first months of the year, there are good reasons for the bounce. The largest tech players have structural advantages that make them especially attractive for investors during volatile moments, according to Todd Ahlsten, chief investment officer at Parnassus Investments.
“It’s not overly surprising that if the market is going to snap back, investors are going to look to those companies that are in very good positions, that are going to grow earnings, have low debt … and are part of a secular tailwind [of artificial intelligence],” Ahlsten says. He thinks those advantages could have propelled the Magnificent Seven even higher without the tariff-induced turmoil. From Morningstar’s point of view, most of the Magnificent Seven stocks were undervalued even before the tariff selloff.
Firms like Microsoft and Apple also delivered strong earnings results for the first quarter and relatively positive guidance for the year ahead, according to Morningstar’s analysts, even amid an uncertain trade landscape.
Also in the mix (especially for retail investors) is the group’s recent history of powerful outperformance. Megacap tech stocks drove the market to new records in 2023 and 2024, and they reliably rebounded even after the market stumbled. Mark Hackett, chief market strategist at Nationwide, says investors aren’t likely to forget that anytime soon. “When the market’s good, buy tech, when the market’s bad, buy tech—that’s been the philosophy coming into this period,” he explains. “The easiest place to go for investors, if you’re trying to buy dips, is the Mag Seven.”
Which Stocks Will Lead the Market Next?
Hackett expects that phenomenon to fade in the coming months. “Once you get through this emotionally driven market, you start going back to the fundamentals,” he says. He adds that many of the challenges facing the category heading into the year remain, like pressure on valuations and a narrowing gap between big tech and the rest of the market. He expects investors to return to the trades that worked in the first three months—like value, quality, and international markets—once the dust settles.
It could be a few months before that happens. “We think there is a high probability of more volatility yet to come,” Morningstar chief US market strategist Dave Sekera wrote in his outlook for May. “Trade negotiations have reportedly begun, yet finalized agreements don’t appear to be anywhere near fruition.” With a few more months of turbulence possible, he recommends investors overweight value stocks, which are trading at a discount, and underweight growth stocks, which are still trading at a premium.
