The “Magnificent 7” stocks, which have come to represent a significant portion of the S&P 500, are now considered oversold following last week’s selloff, according to Alpine Macro.
These stocks, accounting for 33% of the S&P 500, experienced a sharp decline, leading analysts to believe that their prices are now overstretched in the short term.
Alpine Macro’s latest analysis provides a detailed overview of these stocks through various indicators. The firm noted that technical and capital allocation indicators show signs of an overextended selloff, suggesting a potential rebound or at least a stabilization in the near term.
They note that this is particularly relevant given the “huge runup” in market capitalization and stock prices over the past decade.
The investment research firm’s analysis also highlights the divergence in fundamentals such as sales, margins, and cash flows, which have remained strong for the Mag 7 compared to the rest of the market.
This divergence is said to raise questions about the sustainability of these trends, with Alpine Macro suggesting that a mean reversion could be on the horizon.
Valuation remains a key concern. Although the current pullback may make these stocks appear less expensive, Alpine Macro cautions that they might still be “merely expensive” rather than irrationally priced.
The report emphasizes the importance of comparing this period of market concentration with previous ones, noting that while the fundamentals are different, the dominance of a few stocks is a recurring theme in U.S. equity markets.
