I began assembling a chart of just how dependent the growth in the S&P 500 stock index was on just the “Magnificent Seven” stocks but, lo!, and behold the Visual Capitalist had already done it for me. What that chart tells me is that the index is very much dependent on those stocks and becoming more so.
Just seven stocks carrying such weight is a very narrow base. Their total global workforce is about 2.37 million people. Most of those are in the United States. They comprise less than 2% of total U. S. employment and all are technology stocks. I don’t think that’s healthy. Most of them are companies that didn’t exist 30 years ago and only one of them existed 50 years ago. Easy come, easy go.
A general problem with indexes, as I have pointed out in the past. I have never seen it done but I suspect that if you looked at just the non-Mag 7 you would see PE multiples at a sensible level. On the other hand, you pay up for growth or at least perceived growth of the Mag 7.
As for what it means for the underlying real economy, that’s an interesting question. It’s a technology world. At one time an index comprised of railroads and steel companies etc might make sense. (You might even call it the DJINdustrials !). Not now. And, we have deindustrialized.
I think your observation on narrowness is spot on. But we need to come to grips as a nation with the notion that a diversified/not outsourced economic base is important. I think it’s dawning on some, but not all. I don’t know if we have the political will. I guess we will see over the next few years.
Somone wrote recently that the on paper value of one of the 7 was worth more than the total market cap of Germany. There is something wrong with that.
Steve
YIKES!
This is why I rarely check in on you anymore. You post scary stuff!