Yardeni Research Downgrades Magnificent Seven as Growth Cools

The once-unstoppable "Magnificent Seven" have lost some of their luster, and Yardeni Research is sounding the alarm. The firm's latest analysis suggests that the tech darlings-Meta (META), Microsoft (MSFT), and Nvidia (NVDA) aside-have underperformed the S&P 500 in 2025, with Apple (AAPL) and Tesla (TSLA) lagging by 20% or more and Amazon (AMZN) essentially flat in an otherwise bullish market according to analysis. This divergence marks a pivotal moment in the market's evolution, raising questions about the sustainability of the tech-driven bull run and the need for investors to rebalance their portfolios.

The Cooling of the Tech Bull Run

The Magnificent Seven's dominance has waned, both in relative performance and influence. In 2023 and 2024, these seven stocks accounted for the lion's share of the S&P 500's gains. By 2025, their contribution has diminished, and their correlation with the broader index has risen, meaning they now move in lockstep with the market rather than leading it. This shift reflects a broader market realignment, where the "Impressive 493" (the S&P 500 excluding the Magnificent Seven) is showing signs of catching up.

Valuation metrics further underscore the cooling. The Magnificent Seven's forward price-to-earnings ratios have fallen to 25 from 30, a sign of tempered optimism. Meanwhile, the Buffett Ratio has surged to 3.2 for the Magnificent Seven, compared to 2.4 for the rest of the S&P 500. Such disparities highlight the risks of overconcentration in a narrow group of stocks, even as their earnings remain robust.

Rebalancing Exposure: A Strategic Shift

Yardeni Research is urging investors to recalibrate their portfolios. The firm's recommendations emphasize reducing exposure to tech giants like Nvidia, which has surged 60% since 2019, and reallocating to sectors like financials, industrials, and healthcare. This pivot is driven by two key factors: the potential for broader market growth and the looming threat of technological obsolescence in fast-evolving industries like semiconductors.

The firm's optimism for the broader market is grounded in earnings strength. S&P 500 earnings are projected to rise from $265 per share in 2025 to $350 per share by 2027, a trajectory that could push the index toward 10,000 by the end of the decade according to market calls. This growth is not confined to tech; sectors like financials and industrials are expected to benefit from a resilient labor market and demographic tailwinds from the aging baby boomer population according to analysis.

Macro Risks and the Shadow of Speculation

Yet, the road ahead is not without hazards. Yardeni Research warns of a "melt-up" scenario, a speculative rally driven by valuations rather than fundamentals, triggered by aggressive Federal Reserve rate cuts in a strong economy. Such a scenario echoes the excesses of the late 1990s tech bubble, a cautionary tale for investors who may be tempted to chase momentum.

Geopolitical uncertainties also loom. Trump's tariffs are creating ripples in global trade, particularly for Japan and Latin America, and could indirectly affect U.S. markets by disrupting supply chains and inflating costs. While the U.S. economy remains resilient, these external pressures underscore the need for a diversified approach.

Conclusion: A New Era of Balance

The Magnificent Seven's slowdown is not a collapse but a correction-a signal that the bull market is maturing. For investors, the lesson is clear: overreliance on a handful of stocks, no matter how dominant, carries risks. Yardeni Research's call to rebalance toward the "Impressive 493" and sectors with strong earnings potential is a pragmatic response to a shifting landscape. As the market broadens, the challenge will be to capitalize on emerging opportunities while guarding against the ghosts of speculative excess.