Good morning investors. Today we’re unpacking three charts that illustrate something unusual happening in the stock market right now.

Investors suddenly seem to care about something beyond the market’s biggest winners.

Today’s letter is brought to you by Public!

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Unusual outperformance vs. Mag 7

Over the last two years, outsized returns for the Magnificent Seven — Amazon, Apple, Nvidia, Microsoft, Alphabet, Tesla and Meta — have fueled chatter of a top-heavy, bubbly market reminiscent of the dot-com era. 

That darling group has roughly doubled the returns of the S&P 500 in the last 12 months. 

And as I wrote Monday, short bets against those names have dried up this summer, meaning investors have only grown more bullish on the bunch. 

But there’s an intriguing shift underway.

So far in the third quarter, these seven stocks have actually underperformed the rest of the S&P 500. 

It’s the first time that’s happened in almost two years. 

This suggests two things: 

1. The Magnificent Seven may not be so frothy after all

2. Investors are getting more optimistic about the rest of the market 

To Brian Belski, the chief investment strategist at BMO Capital Markets, this is indeed reassuring, given that the benchmark is hovering near record highs without the Magnificent Seven doing most of the work. 

“Participation levels have also improved dramatically since 3Q started as nearly 300 S&P 500 stocks have outperformed the broader index,” Belski told clients Monday.

Lower concentration at the top means more winners across the board. 

As it happens, however, this rotation comes right as the stock market tends to take a negative turn.

Over the last 75 years, September has proven to be the weakest month of the year for the S&P 500. 

On average, it ends the 30-day stretch down 0.7% dating back to 1948, data from BMO Capital Markets shows.

This seasonal trend has been uniquely bad in recent years, according to Belski. 

“The past four Septembers saw the S&P 500 suffer significant losses which we find interesting because apart from 2022, these losses were all preceded by strong summer gains, similar to the current environment,” he explained. 

For what it’s worth, the last three months of a year tend to be strong, as the chart above shows. 

“Even if the market repeats this trend this year, we remain optimistic longer-term because the market staged an impressive comeback during 4Q [from 2020 to 2023], with an average gain over 10 percent,” Belski said.  

Comments or feedback? Hit reply to this email or let me know on X @philrosenn.

Elsewhere:

📉Stocks snapped the win-streak. The S&P 500 and Nasdaq both took a breather Tuesday after an eight-day stretch of green days. Markets around the world remain focused on Jerome Powell’s speech in Jackson Hole on Friday.

🏦 One million US jobs could be erased. US job growth has likely been much weaker than expected. Wall Street analysts expect the government to announce Wednesday that it had overstated job growth by between 600,000 and one million new payrolls in the year through March. If those figures come to fruition, the Fed would be more behind the curve on rate cuts than previously thought. (Bloomberg)

🚀 The Magnificent Seven have added over $1.4 trillion in market cap since August 5. While the rally as a whole has broadened out, the household names are still pulling their weight. Tech had led the losses in July and earlier this month, and now they are storming back in a big way. (Yahoo Finance)

Rapid-fire:

• Palo Alto stock rallied 7.1% Tuesday after boosting its share buyback program (Bloomberg)

• Space stock Mynaric tanked 55% on Tuesday as it slashed its revenue forecast for the year (CNBC)

• Elon Musk’s takeover of Twitter left banks with the worst buyout deal since the Great Financial Crisis (WSJ)

• Trump Media stock hit an all-time low on Tuesday as the former president got the green light to cash in his shares if he wants (Bloomberg)

• Nvidia has added $765 billion in market value within two weeks (Business Insider)

• Americans are looking for jobs at the highest rate in a decade, a new Fed survey shows (Yahoo Finance)

• SiriusXM stock jumped as “Call Her Daddy” podcaster Alex Cooper inks $100 million deal to leave Spotify for the broadcast company (Deadline)

Last thing:

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