NDR: The Plight of the Largest 7

The mega-cap companies (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla), known as the Magnificent Seven ("Mag 7") have significantly outperformed the market. This has led to recent headlines invoking the infamous "B" word, bubble. Is that true? To test this hypothesis, let's examine the characteristics of the market's largest stocks over time. Using NDR’s vast databases free from survivorship bias, we can efficiently create a custom index of U.S. mega-cap stocks dating back 50 years. Rather than the "Mag 7," we focus on what we will refer to as the “Largest 7” in this case study.
Recently a client asked NDR, "Since the Largest 7 stocks in the S&P 500 have performed so well over the last few years. Is this common for the top performers in the market?"

NDR analysis pointed to a simple answer, "No." Over the last 50+ years, the Largest 7 stocks in the S&P 500, cap-weighted and reselected quarterly, have underperformed the rest of the index by an annualized 0.7%. 

However, there have been two periods where the Largest 7 stocks outperformed by a wide margin the first being the six-year run-up ending at the top of the internet bubble, and the second being the current run-up that began in late 2015. The chart above shows these periods shaded in darker grey.

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