Everyone thinks it’s all over for the “Magnificent Seven.”
The bull market is finished. The crash is coming.
That’s the narrative making the rounds right now.
It reminds me of Fred Sanford grabbing his chest and yelling, “This is the big one!” every time something went wrong.
But what if it isn’t?
What if this isn’t the end of the bull market at all?
Market crashes are actually pretty rare. And if you look back at this decade alone, we’ve already had plenty of drama.
We saw a full blown bear market in 2021-22 and one of the fastest market crashes in history in 2020.
We’ve also had multiple double-digit corrections along the way.
And we’re only halfway through the 2020s.
So before we declare the end of the bull market, it’s worth asking a simpler question.
What if this is just normal bull market behavior?
What if the selling in the Mag Seven isn’t the end of the cycle, but simply a rotation within it?
Because while the headlines focus on the damage in a handful of mega cap names, the broader market has been holding up just fine.
And if you look a little closer, you might even start to see some early evidence that the recent weakness in the so-called Magnificent Seven could be setting up the exact conditions needed for the next move higher.
Let’s take a look.
The Correction in the Lag Seven
If you compare what’s happening inside the Magnificent Seven to what the broader market has been doing, the difference is pretty striking.
The S&P 500 is only down 1% since late October. And the Dow Jones Industrial Average is basically flat over that same period.
But inside this small group of mega-cap leaders, the damage has been much more severe:
Microsoft (MSFT) has been dragging on the group. Meta Platforms (META), Nvidia (NVDA), and Tesla (TSLA) have all gone through meaningful drawdowns as well.
For stocks that had been carrying the market for the better part of two years, the pullbacks have been sharp enough to get everyone’s attention.
And they should.
After all, this basket of stocks represents more than $20 trillion in market capitalization. These are not niche trades. These names dominate index funds, institutional portfolios, and global asset allocations.
This is what everyone owns. Not just investors in the United States, but investors around the world.
So when these stocks start getting hit, sentiment tends to change quickly.
It’s probably no coincidence that individual investor sentiment has flipped bearish for three consecutive weeks, according to the latest AAII survey.
When the most widely owned stocks in the world start falling, confidence usually goes with them.
But here’s the real question.
Has the selling gone far enough?
Because if this correction in the Magnificent Seven is already generating this much pessimism, it might be setting the stage for something very different than the crash everyone seems to be expecting.
The Divergence Heard ’Round the World
This might be what everyone is waiting for.
Here we’re looking at the relative performance of the Magnificent Seven compared with the broader S&P 500:
Price made lower lows into the end of February. But momentum did not. Instead, momentum held a higher low.
That’s a classic bullish divergence.
These types of divergences often show up near important turning points. They tell us that while price may still be drifting lower, the underlying momentum behind the move is already starting to improve.
Of course, a divergence by itself is not a buy signal. We have to see confirmation from price.
But when shorter-term bullish divergences start to appear within an existing long-term uptrend, the odds begin to tilt back toward the bulls.
And that longer-term trend is still very much intact.
Alphabet (GOOGL), Amazon.com (AMZN), Nvidia, Meta, Tesla, and even Microsoft continue to outperform the broader market over time. Apple (AAPL) has mostly kept pace as well.
If you zoom out, these are still the leaders.
When you study bull markets going back a century, one theme shows up over and over again. Technology tends to lead. The strongest trends almost always come from innovation and growth.
If this bull market still has room to run, and the S&P 500 is going to push through 7,000 and eventually into the 8,000s, these stocks will almost certainly be part of that move.
So maybe the question isn’t whether the Magnificent Seven are finished.
Maybe the real question is whether this correction is simply the reset that gets them going again.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs