What a year it was for the stock market in 2024. The S&P 500 ripped higher by more than 27% as the bull market continued for a second year. A large share of those gains came from the "Magnificent Seven" stocks, some of the world's largest tech and artificial intelligence companies. These mega-cap companies have market caps ranging from $1.5 trillion to $3.8 trillion, so a positive move for any of these stocks can have an outsized impact on the broader S&P 500 index. Almost all of the Magnificent Seven enjoyed big gains in 2024. With the Magnificent Seven morphing into the Fateful Eight, can these stocks carry the market again in 2025?
The Magnificent Seven plus one
Bank of America analyst Michael Hartnett coined the term Magnificent Seven in 2023, grouping several stocks that demonstrated dominance from the financial, market, and technological innovation perspectives. Here's how the Magnificent Seven stocks performed this year through Dec. 25:
Every stock in the Magnificent Seven outperformed the broader market except Microsoft(NASDAQ: MSFT), and the average performance of the Magnificent Seven was close to 69%. This is a big deal because the Magnificent Seven accounts for roughly a third of the value of the market-cap weighted S&P 500 and more than 50% of the value of the Nasdaq Composite.
Recently, the On The Tape podcast, hosted by Wall Street veterans Dan Nathan, Guy Adami, Danny Moses, and Liz Young Thomas, coined a new name for a group of key tech giants: Their "Fateful Eight" starts with the Magnificent Seven, but adds chipmaking and software giant Broadcom(NASDAQ: AVGO). Broadcom's market cap recently surpassed $1 trillion, and the stock is up by more than 45% in the past month.
What can we expect from the Fateful Eight in 2025?
After an epic year, here are forward earnings ratios for the Fateful Eight companies:
These are pretty lofty valuations, with Tesla(NASDAQ: TSLA)breaking away from the pack and Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG) and Meta Platforms(NASDAQ: META) looking more reasonable. In light of that, many market watchers question whether the major indexes will perform well next year, given that these eight companies make up so much of their value. Still, most Wall Street analysts expect the market to continue to perform well in 2025, though not as well as it did over the last two years.
With the market up by about 57% over the last two years, it seems improbable that it could replicate such a strong performance for a third consecutive year. However, leading up to the dot-com crash, the market soared for five straight years in the late 1990s, and the tailwinds from AI seem powerful given how big the potential markets are and how impactful AI is expected to be in our daily lives.
I think inflation and Treasury yields will play large roles in the performance of these stocks next year. With the 10-year Treasury yield close to 4.6% (as of Dec. 26), investors are certainly concerned about the prospect of inflation reigniting in 2025. The Federal Reserve is projecting only two interest rate cuts in 2025, down from four cuts it previously anticipated. In addition, some worry about the impact that President-elect Donald Trump's policies will have on the economy.
That said, better data from the labor market or the Consumer Price Index, which would put more interest rate cuts in play without the prospect of a recession, could lift stocks, particularly those in the tech sector that trade better in a "risk-on" environment. Other market strategists think the Fateful Eight will become defensive plays due to the uncertainty ahead.
I expect the market to experience turbulence in 2025. However, I don't expect Broadcom's inclusion in the Fateful Eight will have a significant impact on the group, and I don't expect the Fateful Eight to outperform the Magnificent Seven in 2025 considering the stocks have elevated valuations, tougher earnings comps, and economic challenges from renewed inflation or a potential recession. These stocks may still end 2025 at higher levels than they trade at now, but I wouldn't expect them to deliver booming results like those they put up in 2024.
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Bank of America is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Bram Berkowitz has positions in Bank of America. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Bank of America, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Broadcom and Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
