Back to View all
Chart of the week

Diversification is key as the Mag 7 overshadows market

The Magnificent 7 tech stocks increasingly dictate the risk and return profile of the S&P 500, emphasizing the importance of diversification.

Subscribe to the Chart of the week newsletter
June 7, 2024 | 2 minute read

Magnificent 7 contribution to S&P 500 monthly volatility

Line chart shows the steadily rising contribution of the Magnificent 7 to the monthly volatility of the S&P 500 as these stocks (Microsoft, Apple, Amazon, META, Invidia, Tesla and Google) represent 32% of the Index. Investing in the S&P 500 increasingly implies a bet on their performance.

Source: Bloomberg Finance, L.P., as of May 31, 2024. Magnificent Seven includes MSFT, AAPL, AMZN, META, NVDA, TSLA and GOOG. 

  • Major equity indices hit new all-time highs this week, highlighting stocks’ strong run over the past 18 months. Despite markets’ notable optimism, investors continue to wrestle with potentially challenging allocation decisions given the current macro backdrop.
  • Stock-bond correlations are at a 40-year high, calling into question bonds’ reliability as a portfolio ballast against volatile equity markets.1 Core fixed income in particular has struggled amid significant rate volatility, returning -0.17% over the past five years.2
  • Additionally, investing in the S&P 500 increasingly implies a concentrated bet on the Magnificent 7, an inescapable group of massive U.S. tech and tech-related firms.
  • The Mag 7’s weighting in the S&P 500 has skyrocketed over the past decade, eclipsing 30% today and, as the chart shows, its contribution to the index’s risk is also meaningfully higher (42%).1
  • Against a backdrop of historically high stock-bond correlations and historically high concentration within the equity market, it is increasingly important to find alternative sources of diversification.

  • Bloomberg Finance, L.P. as of May 31, 2023. Rolling 36-month correlation between the S&P 500 and Bloomberg U.S. Aggregate Index.

  • Bloomberg U.S. Aggregate Index as of May 31, 2024.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Print this page Email this page

Related Insights

Chart of the week

Investor sentiment outpacing earnings?

Investor sentiment has raced to all-time highs. Could investors be overlooking potential volatility drivers, including moderating earnings forecasts?

Chart of the week

Bond performance has improved, but volatility remains

Large monthly swings in core fixed income continue to rattle investors, calling into question its traditional role as a portfolio ballast.

Chart of the week

Private credit is a small fraction of the U.S. credit market

In contrast to the headlines, the primary story in private credit is the change in market share, not the change in market size.

Search our site