The stock market can be confusing.
Sometimes the winners aren’t obvious in advance and the market surprises.
Other times the winners are obvious. The biggest, best stocks are sometimes the best investments. That’s certainly been the case for the past 10 years or so when it comes to mega cap tech stocks.
This felt real because in some years because it was kind of true:
But the tide has turned a tad in recent years. The Mag 7 is not the carrying the stock market anymore. In fact, the Mag 7 is underperforming basically everything else right now.
Let’s look at some charts.
Here’s a good one from Exhibit A showing year to date performance of the Mag 7 vs. the S&P 500 vs. the S&P 493:
The S&P 493 is destroying the Mag 7 so far in 2026.
Here’s another way to visualize this at the Mag 7 company level:
Microsoft, Meta and Tesla are detracting from performance for the S&P 500 this year. The 493 is responsible for around 96% of the price-only return this year.
Six of the Mag 7 are currently in a double-digit drawdown:
Small caps are crushing large caps this year:
And it’s not just small caps. Essentially everything in the U.S. stock market is outperforming the Mag 7 this year.
Chart Kid Matt breaks it down by various market caps and styles:
I don’t know if this will continue.
Maybe the market is wrong to punish the hyperscalers for burning through their free cash flow faster than my neighbor lighting off his bootleg firework stash this weekend.
But this is a good reminder that markets are always and forever cyclical.
For a while there were many investors wondering what the point of diversification is.
Why not just hold the Mag 7? All they do is outperform.
Nothing outperforms forever.
Expectations change. Investor flows go to where there is value or momentum. The winners never win forever.
Even the biggest, best corporations in the world underperform sometimes.
Michael and I talked about Mag 7 underperformance and much more on this week’s Animal Spirits video:
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Further Reading:
Everything is Beating the S&P 500 This Year
Now here’s what I’ve been reading lately:
- Reverse financial advice (Waiter’s Pad)
- AI isn’t killing jobs (Ramp Economics)
- Timeless investment lessons (Bob Pisani)
- 7 misconceptions about retirement planning (Center for Retirement Research)
- What you have is what you used to want (Meaningful Money)
Books:
