How the 'Magnificent Seven' compares to the great bubbles of all time and what could pop it
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So-called Magnificent Seven stocks are showing behavior consistent with major asset bubbles through history, according to Bank of America. The group — Apple , Microsoft , Alphabet , Nvidia , Amazon , Tesla and Meta — has been on a tear over the past 12 months, collectively surging nearly 140%, as calculated by BofA chief market strategist Michael Hartnett. Looking at variables including catalysts for the surge, the price of money (i.e., interest rates), share prices and valuation, Hartnett sees similarities between the Magnificent Seven and some of the other big bubbles going back centuries. They include events as diverse as the 18th century Mississippi Company’s stock surge of nearly 3,000% to more recent moves such as the dot-com and crypto phenomena. As far as what could pop the bubble, he cited tightening financial conditions and rising real interest rates. Both conditions would seem to be in place as the Federal Reserve holds its policy rate in place while inflation readings moderate. There are multiple gauges of real rates, but Hartnett estimates that the current level is around 2%. A move to 2.5%-3% could be the breaking point, he said. When looking at catalysts for the run-up in the collective share price, common elements with other bubbles are “technological innovation, new geographical sources of growth, and very crucially central bank easing,” Hartnett wrote in his weekly “Flow Show” note dated Thursday. He contended that the artificial intelligence bubble started with the March 2023 implosion of Silicon Valley Bank as well as the advent of ChatGPT. From a valuation standpoint, the Magnificent Seven is currently 20% above its 200-day moving average. On valuation, the group is trading at 45 times earnings. “It ain’t cheap but true that bubble highs have seen dafter valuations,” Hartnett wrote.
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