Make no mistake: this is the Age of the Magnificent Seven.
The septet of tech high rollers, including Apple (AAPL) , Nvidia (NVDA) , Tesla (TSLA) and Amazon (AMZN) , has had a massive impact on the stock market.
The group gained 63% in 2024 after rising more than 75% the year before, driven by the phenomenal growth of artificial intelligence.
But half a century ago, it was a different story.
Back then, it was all about the Nifty Fifty, a group of 50 large-cap stocks on the New York Stock Exchange that institutional investors couldn't get enough of.
The big names of that period included American Express (AXP) , Eastman Kodak KODK, Polaroid, General Electric GE, and Texas Instruments.
These were described as “one-decision stocks: buy and never sell.”
In a web post, Bridgeway Capital Management analysts said there was never a fixed set of 50 companies comprising an “official” Nifty Fifty.
"Rather, it was a designation given to several large-growth firms that were considered good investments and called one-decision stocks," the firm said. "Investors could supposedly buy them and never sell, despite high valuations.
Bridgeway said the Nifty Fifty companies were typically quite successful, producing strong earnings growth and profitability.
"But a great company is not necessarily a great stock, and starting in 1973, their returns disappointed for years," the firm said.
Doug Kass recently issued a stark outlook for the S&P 500 for 2025.TheStreet
Hedge fund manager looks back to the Seventies
Long-time money manager Doug Kass is seeing intriguing parallels between the state of the current market and the Wall Street of yesteryear
"With the 10-year Treasury yield reaching multi-month highs, my baseline expectation is that January 2025 could represent an important top in stocks — much like it did 53 years ago in 1972," the veteran hedge fund manager said.
In 1972, Richard Nixon was president, a gallon of gas cost 36 cents, the median family income in the U.S. was $11,120, and the average individual income was over $6,000.
Francis Ford Coppola's The Godfather was the highest-grossing film that year, and Roberta Flack's "The First Time Ever I Saw Your Face" was the top song.
"My theory has been that the December 2024/January 2025 market may resemble an important top similar to December 1972/January 1973," Kass said in a post on TheStreet Pro.
He noted that both periods featured combative presidents—Richard Nixon in the past and incoming President-elect Donald Trump in the present.
Kass said that in both periods, interest rates and inflation increased from the prior few decades, and public sector debt was climbing rapidly.
"Like in 1972, we lack visibility today and a sense of fiscal responsibility on the part of our political leaders with regard to future fiscal policy," he said.
Kass said the forward P/E [price to earnings ratio] was extremely elevated in both periods. The market advance was not broadening out, and “animal spirits” took stock prices higher without a commensurate change in future profit forecasts, and the equity risk premium was paper thin.
"An epic market top was completed in January 1973 — leading to a poor year for the S&P Index, which marked the beginning of the end of the Nifty Fifty and several years of weak performance in the Indices," Kass said.
Kass expects something similar to that this month: "an important market top, a down year for the averages and marked by the beginning of the end of the Mag 7, which could extend multiple years."
The S&P 500 was up more than 23% in 2024, and Wall Street analysts expect the bull market to continue for another year of double-digit performance.
Warnings from the dot.com era
"The advent of Trump 2.0 is boosting the velocity of money since uncertainty has ended with his 'drill baby drill' and other pro-business policies," said Louis Navellier, chairman and Founder of Navellier & Associates.
"For 2025, the companies I like most will be helping to expand the utility grid and cloud computing," he added.
To illustrate his point, Kass included in his column a March 3, 2000 memo about the end of the Nifty Fifty era written by legendary technical analyst Walter Deemer, with whom he worked nearly 50 years ago at Putnam Investments.
During the dot.com tech bubble, people talked about the "New Economy," a shift from a manufacturing and commodity-based economy to one that used technology to create new products and services.
"I've never seen anything even remotely comparable to the current chasm in the stock market between New Economy and Old Economy stocks," Deemer wrote in 2000.
At the time, Deemer wrote, "The tech-heavy Nasdaq, which rose 85% in 1999, has risen another 16% so far this year,“ while the Dow Jones Industrial Average (whose 30 components happen to earn more than all of the NASDAQ stocks combined do) was recently off more than 14%.”
Deemer acknowledged the differences between the New Economy and the Nifty Fifty era but noted, "the arrogance on the part of all too many money managers was disturbingly similar."
The prevailing attitude was that the Nifty Fifty stocks were the ones people had to own at any price, he said, and relative valuations were not even considered.
"The really tragic part of the Nifty Fifty story, though, was not what happened to the stocks during the 1974 bear market," he said. "The really tragic part of the Nifty Fifty story was what happened to them in the months and years afterwards."
Deemer said stocks underperformed throughout 1975, 1976, and 1977, and "following a brief rally in 1978, the underperformance resurfaced and lingered on for another couple of years."
Only time will tell if 2025 mirrors 2000 and 1973. However, Kass thinks that possibility is far more likely than most investors think.
