Good morning! Markets will be closed on Thursday in honor of former president Jimmy Carter, who passed away on December 29 at age 100.

Now, everyone knows that Magnificent Seven stocks have shaped the market in their image over recent years. Today’s edition unpacks just how dominant they’ve really been.

Mediocre gains without Big Tech

Power laws rule everything.

Even financial markets. 

It doesn’t take much to dramatically change outcomes, so long as action is concentrated in the right places. The Pareto principle, more commonly known as the 80/20 rule, posits that a tiny number of variables drive the majority of outcomes: 

• A handful of authors write all the bestsellers

• The best employees fuel most of a company’s productivity

• A few dedicated customers can keep a business in the black

For our purposes: A small, mighty handful of tech stocks have been responsible for nearly all of the stock markets’ gains the last several years. 

The Magnificent Seven — Meta, Alphabet, Tesla, Nvidia, Apple, Amazon, Microsoft — have ballooned in valuation and popularity since the pandemic, and investors still haven’t grown tired of them. 

At the start of 2023, this batch of stocks made up 20% of the S&P 500. That proportion turned into 28% a year later.

Now as 2025 begins, the Magnificent Seven hold about a 33% weighting in the benchmark index. 

To DataTrek Research co-founders Nick Colas and Jessica Rabe, the Magnificent Seven will once again determine what sort of year the S&P 500 has, and how large-cap stocks perform compared to small-caps and other countries’ indices.

On a price return basis, the S&P 500 is coming off back-to-back strong years of 24.2% and 23.3% gains, respectively.

In fact, by DataTrek’s calculations, the index would have barely registered a gain without the Magnificent Seven.

“These ‘ex-Mag 7’ S&P 500 returns were worse than the [small-cap] Russell’s gains in 2023/2024, at 15.1/10 percent, respectively,” Colas and Rabe said, adding that other non-US benchmarks also would have outperformed. 

To that point, Roundhill Investment’s Magnificent Seven ETF, which offers equal-weight exposure to the high-flying batch, nearly tripled the returns of the S&P 500 over the last 12 months.

Over the last decade, the market capitalization for the Magnificent Seven has grown close to 800%.

The rest of the S&P 500 has seen its market cap increase by about 150%. 

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Elsewhere:

📈 2025 could usher in a wave of IPOs. Wall Street bankers are gearing up for a revival in public debuts, with private equity groups seeking to offload some of their holdings into frothy equity markets. Industry analysts expect a flurry of new listings in the coming months, largely on hopes president-elect Trump will cut regulations and taxes. (FT)

🏦 Credit Suisse had deeper Nazi ties than previously known. Independent investigators probing the Swiss bank found a cache of client files that pointed to signs of a coverup related to illicit World War II-era activities. Previous probes in the 1990s led Switzerland’s two largest banks to pay more than $1 billion in restitution to Holocaust victims, but conclusions drawn at the time may have withheld crucial information. (WSJ)

Traders see 71% odds Trump will issue more than 15 Executive Orders on his first day in office, according to Kalshi, the biggest US prediction market:

Rapid-fire:

• Joe Biden signed a bill Sunday that expands Social Security benefits for certain government retirees while weakening the program’s already strained finances (CNBC)

• Currency traders are waiting to see how much the People’s Bank of China will support the yuan against the dollar (Bloomberg)

• One of Jimmy Carter’s most lasting decisions was appointing Paul Volcker as chairman of the Federal Reserve (Barron’s)

• Open-air neighborhood shopping centers have become one of the hardest types of commercial real estate to find space in, with occupancy rates soaring (WSJ)

• BlackRock’s bitcoin ETF, IBIT, has grown to more than $50 billion in assets in less than a year (Bloomberg)

• A major winter storm is rolling through the US and areas including Kansas, Kentucky, Virginia, and Arkansas have declared states of emergency (CNBC)

Last thing:

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