Magnificent Seven ETF: On the Brink of Correction

The Roundhill Magnificent Seven ETF (MAGS), which tracks the performance of the seven largest tech companies, is on the verge of closing in correction territory. As of Tuesday, February 25, 2025, the ETF had fallen more than 11% from its record finish on December 17, 2024, passing the threshold that meets the definition of a correction (Bloomberg, 2025). This decline is the ETF's third correction since it launched in April 2023, with the first being a slow, shallow 12% slump from late July 2023 to late October of that year, and the second being a sharp 18% drop that began amid a rotation into small-cap stocks in mid-July and bottomed with the yen carry trade rout of early August.

The recent decline in the Magnificent Seven ETF can be attributed to several factors that have also impacted the broader tech sector. These factors include slowing earnings growth, AI and earnings uncertainty, market rotation, and specific company-specific issues.

Slowing Earnings Growth
Earnings growth at Magnificent Seven companies has begun to slow as year-over-year comparisons have become more challenging. This is in contrast to the rest of the S&P 500, where earnings growth is accelerating, albeit from a low base. This divergence in earnings growth has led to a rotation away from tech stocks and into other sectors.

AI and Earnings Uncertainty
The AI-driven rally that benefited the Magnificent Seven in 2023 and 2024 has hit a speed bump in 2025. Concerns about the economics of AI and slowing demand for AI chips have weighed on tech stocks. The revelation of an open-source AI model from Chinese startup DeepSeek that matched the performance of leading American models at a fraction of the cost has also raised questions about the utility of the Magnificent Seven's massive investments in AI infrastructure.

Market Rotation
The broader market has been experiencing a rotation away from tech stocks and into other sectors. This rotation has been driven by a variety of factors, including concerns about elevated valuations, slowing growth, and geopolitical risks.

Specific Company-Specific Issues
Some of the Magnificent Seven companies have faced specific challenges that have contributed to their underperformance. For example, Tesla has been bogged down by a string of bad sales reports and heightened competition from Chinese rivals like BYD Co. Meanwhile, Meta Platforms has bucked the trend this year as investors endorse the social media giant's AI strategy.

The upcoming earnings report from Nvidia, scheduled for after the closing bell on Wednesday, February 26, 2025, has played a significant role in the market's sentiment towards the Magnificent Seven ETF. Investors are closely watching Nvidia's earnings report as a potential catalyst that could stop the bleeding in the tech sector and revive a broader stock market rally (Watts, 2025). The results of Nvidia's earnings report could provide valuable insights into the demand for its AI chips and the overall health of the tech sector, which in turn could influence the performance of the Magnificent Seven ETF.

In conclusion, the Magnificent Seven ETF is on the brink of closing in correction territory, with several factors contributing to its recent decline. The upcoming earnings report from Nvidia could serve as a catalyst for a rebound in the ETF's performance or further exacerbate the ongoing correction. Investors should closely monitor the tech sector and the performance of the Magnificent Seven ETF as the market continues to evolve.