The 'Lagnificent Seven' and an Undercurrent of Fear
Dear subscriber,
Things are crazy out there. But you wouldn't know it if you just checked the big indexes each day.
The market is still near its all-time highs. The S&P 500 Index is above 6,000. The Dow Jones Industrial Average is near 45,000. And the Nasdaq Composite Index is approaching 20,000.
But under the surface, the market isn't holding up as well as those numbers would lead you to believe.
See, stocks are flashing a warning sign that you need to be aware of today...
For starters, the air has come out of the "Magnificent Seven" tech stocks.
After dominating for years, the Magnificent Seven are now down nearly 5%, on average, since their December high...
And this drop has only accelerated with the companies' latest earnings announcements...
Shares of Apple (AAPL) fell from late January into early February after the tech giant reported weak iPhone sales. Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL) also dropped after their announcements, though their dips were mostly due to their plans to heavily boost investments in AI and data centers.
(As I predicted in August, investors are starting to get impatient with all this AI spending. There still aren't any profits to show for it.)
Tesla (TSLA) got a huge bump after Elon Musk helped President Donald Trump win the election. (It helps to have friends in high places.) But the stock's gain has since reversed, as with Musk's attention elsewhere, Tesla's vehicle sales have fallen to 2021 levels...
Meta Platforms (META) also announced plans to bump AI spending, though its stock is actually powering ahead. Investors seem happy with the amount of usage its AI advertising tools are getting.
As we covered a couple weeks ago, shares of Nvidia (NVDA) took a huge hit following DeepSeek's announcement of its R1 model. The stock has since recovered a bit... just in time for the company to report earnings on February 26. We'll see where the stock goes from there.
Put it all together, and the Magnificent Seven have lost their mojo.
As Bank of America's Michael Hartnett – who actually coined the phrase "Magnificent Seven" – recently said, these stocks have now become the "Lagnificent Seven."
You may think that's a good thing...
I've certainly lamented on the concentration in the top tech stocks, and I've looked forward to when we finally see a healthy rotation into other good businesses.
But this isn't a healthy rotation. Rather, it's a move out of risk.
Thanks to Trump's back-and-forth policy announcements, economic uncertainty is off the charts today.
A measure of policy uncertainty developed by Stanford University economists shows that things are nearly as unpredictable as they were when the entire world shut down for COVID-19...
When folks are this uncertain, it weighs on their appetite for risky investments.
We can see this in our internally developed Risk-On/Risk-Off Index. When the index line moves up, risky assets are outperforming "safe haven" assets. When it moves down, the opposite is happening.
Take a look...
You can also see investors' declining appetite for risk in the action in bitcoin – which is often seen as the ultimate risk asset...
On the contrary, gold – the ultimate safe haven – has put in a sharp rise...
Not to mention, the yield curve is flattening, which means investors are buying up safe short-term bonds instead of longer-maturity bonds that carry more risk...
What's working, right now, is consumer staples. These stocks are ripping higher since putting in a bottom in January. Companies like Philip Morris International (PM), Costco Wholesale (COST), Walmart (WMT), and Coca-Cola (KO) are all up double digits year to date...
As I noted last week, the market largely shook off Trump's first round of tariff talks.
But as tariff talks drag on, inflation surprises to the upside, and the Department of Government Efficiency keeps making unorthodox moves in Washington... investors are retreating into safer assets.
And those who worry about the health of the market tend to move into safer positions before crashes.
While they don't always get it right... it is a sign of investors' waning confidence in this bull market. So I suggest exercising caution.
What Our Experts Are Reading and Sharing...
U.S. inflation numbers came in hot yesterday. The Consumer Price Index rose 3% year over year in January. That's the biggest gain since June 2024... and it comes before Trump's tariff policies even have a chance to send inflation higher (as they're projected to do). This means we likely won't see as many rate cuts as folks thought. Here's our own Corey McLaughlin with more on the recent inflation data in the Stansberry Digest.
Speaking of tariffs, Trump teased a big announcement on tariffs yesterday, and markets held their breath in anticipation. But as I expected last week, it didn't amount to much. Trump said he's preparing "reciprocal" tariffs on other nations that could take effect in April. As of today, there's no real news on what exactly they will be. You can read more about the president's memo in this Wall Street Journal article.
The National Institutes of Health ("NIH") recently slashed indirect (or "overhead") costs associated with research grants. I would argue that we should be spending much more on research into basic science. But Musk's Department of Government Efficiency doesn't agree. A new policy, which has since been put on "pause" by a federal judge in Boston, states that NIH funding for overhead will now be limited to 15%. Here's an article by sociologist and New York Times columnist Zeynep Tufekci that discusses just what that means for scientists (and everyone else).
New Research in The Stansberry Investor Suite...
We've long said that property-and-casualty insurance is the best business in the world.
An insurer collects premiums from a customer, gets to invest those premiums and earn returns, and might have to pay out claims in the future.
This secret of investing the "float" is what made Warren Buffett rich.
But insurance isn't an easy business.
The tragic wildfires in Southern California have led to a quarter of a trillion dollars in property losses.
What does that mean for insurance companies?
Bryan Beach and Mike DiBiase cover exactly that in today's Stansberry Investor Suite research.
They discuss why catastrophes like this are important to insurance pricing cycles... address why so many Californians have ended up uninsured through this tragedy (and it's not just because of the insurance companies)... and even look at how a few of the top-ranked companies in our Insurance Value Monitor are faring in the wake of the fires.
As you'll see, the best insurance companies have emerged largely unscathed...
Stansberry Investor Suite subscribers can read the entire report here.
If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our special package of research – click here.
Until next week,
Matt Weinschenk
Director of Research
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