Magnificent 7 losing its shine, plus 🧁 weekend sprinkles 🧁
The Sandbox Daily (2.21.2025)
Welcome, Sandbox friends.
Today’s Daily discusses:
Mag 7 reset
🧁 weekend sprinkles 🧁
Let’s dig in.
Blake
Markets in review
EQUITIES: Dow -1.69% | S&P 500 -1.71% | Nasdaq 100 -2.06% | Russell 2000 -2.94%
FIXED INCOME: Barclays Agg Bond +0.43% | High Yield -0.19% | 2yr UST 4.202% | 10yr UST 4.431%
COMMODITIES: Brent Crude -2.92% to $74.25/barrel. Gold -0.21% to $2,950.1/oz.
BITCOIN: -3.47% to $95,013
US DOLLAR INDEX: +0.26% to 106.645
CBOE TOTAL PUT/CALL RATIO: 0.75
VIX: +16.28% to 18.21
Quote of the day
“You, me, everyone. Every single one of us is flawed. The goal isn't perfection, it's progress.”
- Brené Brown
Mag 7 reset
For the past five years, the mega-cap tech stalwarts known as the Magnificent 7 – AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA – have been on an absolute heater that conjures childhood memories growing up in suburban Chicago during the 90s with Michael Jordan.
The superior earnings growth and returns of the Magnificent 7 relative to the S&P 493 have been nothing short of spectacular.
Mega-cap leadership during the past two years drove market concentration to its highest levels in over 50 years.
These tech hyperscalers also led the P/E multiple for U.S. stocks to expand sharply higher (from 17x to 22x), while the valuation for the rest of the world had increased only modestly (from 12x to 14x).
More recently, these darlings have since taken a step back.
Concerns regarding the companies’ high valuations, earnings outlook, and surging CapEx spending were all brought to the forefront following the release of the DeepSeek whitepaper outlining its cost-efficient R1 model.
Add in growing apprehension about a potential reacceleration in inflation, sky-high policy uncertainty, and consumer sentiment falling to seven-month lows.
All this to say the momentum behind the Mag 7 has hit an air pocket – creating the inauspicious bearish chart pattern known as the descending triangle. In short, buying demand has waned as the group now sits on a key support line.
Bulls would like to see buyers dig in here; without this key offensive group, cap-weighted investors will have a hard time making much progress in the coming months.
Despite this elevated concentration, the mega-cap growth downshift has not brought down the broader market. Yet.
One reason for market’s resiliency in 2025 has been improving breadth as the market has broadened out – both in the United States and other markets around the world.
So, how should investor’s view the Mag 7 over the coming months?
Two things come to mind.
First, the Mag 7 is no longer expensive. The Mag 7 forward P/E ratio has traded at a 30% to 65% premium to the S&P 500 over the last decade. If earnings continue to come through, the group’s current 32% premium to the overall market does not look expensive.
The combination of the downshift in returns and resilient earnings estimates has led a drop in relative valuations.
Second, the stocks within the Magnificent 7 are increasingly going their own way. It’s great to finally see discernment among this group.
The return divergence has driven down correlations within the group. While correlations often fluctuate, they have never been lower.
The chart below shows that the median one-year correlation of Mag 7 stocks to the cap-weight Mag 7 Index has trended lower over the past two years and is now 2.5 standard deviations below its average. It suggests greater discretion is needed within the Mag 7 than has been the case historically.
The temporary exclusion of the Magnificent 7 from S&P 500 performance leadership certainly does not mean that these stocks won’t eventually join the bull market party and show strong relative strength and performance in the future.
However, for many who might think SPX remains dominated by just high-flying technology stocks, this year’s performance tells a different story.
Sources: YCharts, Larry Thompson CMT, Goldman Sachs Global Investment Research, Ned Davis Research
🧁 Weekend sprinkles 🧁
Here are the ideas, sights, and sounds that caught my attention this week – perfect for quiet time over the weekend.
Blogs
Bloomberg Odd Lots – Crocs Can Tell Us a Lot About the Trump Tariff Economy (Tracy Alloway)
Stay-At-Home Macro (SAHM) – Inflation. How Worried Should We Be? (Claudia Sahm)
Flow Financial Planning – Unsexy Finances for People Solving Important Problems (Meg Bartelt, CFP)
Of Dollars and Data – Is $1 Million Still a Lot of Money? (Nick Maggiulli)
Young Money – Investing in Creators (Jack Raines)
Mental Floss – 50 Surprising Facts About ‘Saturday Night Live’ (Mental Floss)
Mr Porter – 15 Ways to Improve Your Life, Japanese Style (Ashley Ogawa Clarke)
No Mercy / No Malice – DOGE: What Can Be Done? (Scott Galloway)
Podcasts
TED Talks – How to Turn Setbacks into Success with Amy Shoenthal (YouTube, Spotify, Apple Podcasts)
Capital Allocators with Ted Seides – Building Influence and Capital to Live an Extraordinary Life with Anthony Pompliano (YouTube, Spotify, Apple Podcasts)
Movies/TV Shows
The Agency – Michael Fassbender, Jeffrey Wright, Jodie Turner-Smith, Richard Gere (Apple TV, IMDB, YouTube)
Your Friend, Nate Bargatze (Netflix, IMDB, YouTube)
Music
Mumford & Sons – Rushmere (Spotify, Apple Music, YouTube)
Shaboozey – Good News (Spotify, Apple Music, YouTube)
Books
Matthew McConaughey - Greenlights (Amazon)
Tweet
That’s all for today.
Blake
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Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.
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