The S&P500 and the Power of the Magnificent 7

Julie Kennedy

Alright everybody, you're back with Radio Pete's Wealth Talk—I'm Julie sitting in for Pete, here with Michael Thompson. Michael, every time we think we’ve seen it all, the S&P does something new. This year it’s just... wild. The S&P500 is up what, about 18 percent so far in 2025 with only a few trading days remaining? But—and here’s the kicker—is it really the 500 stocks that are doing so well or is it really all about the so-called Magnificent 7 tech stocks.

Michael Thompson

Yeah, absolutely. it’s almost a story of two markets. You have Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—the big seven—just carrying the whole index. I saw some recent numbers showing these tech stocks account for, like, almost thirty percent of the S&P’s market cap now. That’s just—it’s almost hard to wrap your head around for such a big, supposedly diversified index. Some experts are worried that the S&P 500, an index of large-company stocks that underpins the fortunes of millions of Americans with 401(k) and other retirement accounts, has become too reliant on the Magnificent Seven.

Michael Thompson

You would never see concentration like this, you know, thirty or forty years ago. There’s always been big dogs, but this is... another level. These companies, it's not just their size, but the way they're woven into every part of the economy now. Everybody’s using their products or platforms. AI, cloud, EVs, social media, you name it.

Michael Thompson

And if you look at why they’re surging, you see a couple things—one, there’s the whole AI boom. Nvidia, for example, is riding that wave. Microsoft with Azure. Apple’s still selling an unbelievable number of devices. Amazon’s almost like its own little economy at this point. But what’s wild, is that analysts are basically admitting the rest of the index isn’t doing anything special, right?

Julie Kennedy

Yeah, you got it. Most of these other companies are plugging along. And to be fair, they have been catching up in the fourth quarter this year. But it’s really these seven names that have dominated over the past three years and which get the headlines. They have the momentum’s up top.

Michael Thompson

The analysts are practically waving their arms trying to get people to focus. But, I mean, it’s intoxicating watching seven stocks do what they’re doing. I think we’ve kinda set the stage here for what’s really going on behind those headlines. The concern is a bubble like we saw in the late 90's with prices getting ahead of earnings and valuations.

Julie Kennedy

So, let’s dig into the S&P493. All of those companies outside the mega-cap tech world—what are they up to? I mean, you can’t ignore almost five hundred businesses, can you?

Michael Thompson

Right, and back in the day, we always watched for narrow leadership. When just a handful of stocks are driving things, that can be, well, either a phase or a warning—as in, what happens if those leaders stumble? But here’s something for listeners: Some of these “other” names, like Caterpillar, or Procter & Gamble, or UnitedHealth—they're still profitable and doing well. Just, nobody’s talking about ’em. Does that tell you there’s value hiding out there?

Michael Thompson

I think it could, honestly. Like, Caterpillar’s earnings have been solid. Procter & Gamble—you always need, uh, toothpaste, right?—their cash flow looks strong. These are companies with real businesses, real dividends, and they’re trading at more reasonable valuations now because they’re out of the spotlight. So, you know, as much as the headlines say “risk,” my gut says there’s probably opportunity there if you look past the top performers.

Julie Kennedy

Yeah, but let me play devil’s advocate a second. If these “Magnificent 7” really hit a rough patch, the whole index could, like, fall out of bed. That’s the risk of concentration. Listeners from last episode might remember: We talked about how bonds get hammered when rates shift. This is kinda the same thing—you get momentum and, if it snaps, look out below.

Michael Thompson

Yep, and I’d say it comes back to risk management. If you’re only chasing what’s hot, you're exposed. But history’s full of moments where the ignored part of the market made a comeback. It’s just—people get hypnotized by whatever’s working now. Honestly, I kinda like the setup. If those “quiet” names keep delivering earnings, they might surprise everybody down the line.

Julie Kennedy

So here’s the big question: Does 2026 end up being the year the S&P493 catches up? Or are we in this new era where only the “Magnificent” stay magnificent?

Michael Thompson

Heh, I wish I had a crystal ball, Julie! Look, markets go through cycles. In 1982—yeah, I’m dragging out the ancient history—everybody just wanted energy stocks. Couldn’t give away a bank or a retailer back then. And, you know, a few years later, it all flipped. Suddenly, those “boring” companies started to shine. So I wouldn’t be shocked if the S&P493 makes a comeback nobody expects.

Michael Thompson

We’ve seen this download before. And for folks listening, I think the important lesson is not chasing whatever’s hot; but, figuring out what role each piece of your portfolio plays. Diversification, knowing your risk tolerance... those things matter most right now. Sitting on just the Magnificent 7? That has its own risks. Sitting on the sidelines—also risky.

Julie Kennedy

Exactly. Build a plan. Stick to it. And don’t get caught up thinking today’s leaders will run forever—it never works out that way over the long haul. Actually, Michael, we kinda hit on this in our last episode—crypto, bonds, whatever—it always comes back to balance and perspective, right?

Michael Thompson

Yes, and there was a time when buying an S&P 500 mutual fund or ETF would create a set and forget diversified portfolio. But, admittedly, diversification is tougher now that the S&P market cap is ruled by so few stocks.

Michael Thompson

So, I guess for 2026, all eyes are on whether the Magnificent 7 can keep up the magic or if the quiet companies, start grabbing the spotlight. Either way, the one thing I’m pretty confident in is things will change. They always do. And, let's not forget alternatives such as gold, silver and real estate. Participation in all of these asset classes can be found in easily purchased ETFs and mutual funds these days.

Julie Kennedy

Alright, that’s probably enough for today, folks. We’ll see what the next chapter brings. Michael, always a pleasure talking markets with you, my friend.

Michael Thompson

Thank you and thanks to everyone for tuning in to Radio Pete’s Wealth Talk. Keep watching those markets—and like we always say, don’t get too comfortable. We’ll be back with more soon. Take care.

Julie Kennedy

Take care everyone, and see you next time!