This Rally Is More Than Just the 'Magnificent Seven'

The success of the "Magnificent Seven" will likely go down as the major financial story of 2023...

The S&P 500 Index had an incredible year. The index finished with a 26% gain. But the market's seven largest stocks – Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA) – were up an average of almost 112% last year.

That's more than four times the overall market.

So it's no surprise many investors believed stocks were only up because of these industry titans... and that if these tech stocks slowed down, the market would falter.

The truth is, the recent rally is about a lot more than just the Magnificent Seven. Two important indicators show the reason why... And it's another piece of good news for the overall market.

Let me explain...

The healthiest market rallies are ones where lots of stocks participate. When more stocks are winning than losing, it means the boom can keep going.

If the Magnificent Seven really were the only stocks going higher, that'd be bad news. But that's not what we're seeing today. Let's consider our two indicators...

First up is the advance/decline line. This is a cumulative measure of market breadth. It's built from the number of stocks that are rising each day minus the number falling.

So if 100 stocks rise in a day and 90 fall, the advance/decline line will increase by 10. Over time, this measure tends to rise with the overall market.

Again, if it were just the Magnificent Seven rising, the advance/decline line would be falling. But that's not the case. Instead, this measure is nearing a multiyear high. Take a look...

The advance/decline line rose rapidly in the final weeks of 2023. That means many stocks are participating in the recent boom.

It's a darn good sign of a healthy rally. A similar indicator tells the same tale...

For this second measure, you take the number of S&P 500 stocks hitting 52-week highs and subtract the number of stocks hitting 52-week lows. Then you divide that number by the total number of stocks. If this figure is high, it means lots of stocks are moving higher.

This indicator recently hit 20%. In other words, way more stocks are hitting highs than hitting lows. That's also the highest reading we've seen since May 2021, which was a great time to buy stocks.

Neither of these measures are at their highest levels in history. But they paint a different picture than what many folks believe right now...

Yes, the biggest stocks in America had an incredible year. But they're not the only reason the market went up in 2023.

We're in the middle of a broad and healthy rally. And that's a big reason to be bullish in 2024.

Good investing,

Brett Eversole

Further Reading

"The market is surging across the board," Sean Michael Cummings writes. It's not just about the Magnificent Seven anymore. Another signal confirms that the majority of stocks are trending higher. And based on history, this shift points to continued gains in 2024... Learn more here.

Investors abandoned ship when stocks fell into correction territory last October. But when stocks found a bottom, folks piled back into the market. It's rare for stocks to stage such a furious comeback. But this sort of "whipsaw" event has led to big returns before... Read more here.