Published November 14th 2023

Daily Brief - 🌩️ What if you take out Magnificent 7?

TLDR: The Magnificent Seven - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla - are without a question Wall Street’s superstars. Remarkably, five of them were established in the past 30 years. Each has seen its market value exceed $1trn. But what does the rest of the S&P 500 look like: the S&P 493?

magnificent 7

Before we go there, consider this to see how remarkable the Magnificent 7 really are: the closest Western economy in size to the US, Europe has never produced a $1trn company. In fact, the continent has failed to produce one worth even 10% of that in the last 30 years.

Measured by market value, they account for 29% of the index. The remaining 493 - 98.6% of the total number - don’t fit the same mold: they aren’t led by seven tech prodigies that have moved fast and broken things to conquer the world.

So what does the rest of the index look like?

the great divorce

The Economist did a good piece on the remainder. For starters, the S&P 500 - 7 is a much much older crowd. Like, by a lot.

At the top of the list is Berkshire Hathaway, an investment firm led by two nonagenarians, and Eli Lilly, a pharmaceuticals-maker established in the 19th century by a veteran of America’s civil war. Further down is JPMorgan Chase, a bank that made its name before the founding of the Federal Reserve. That is not to suggest that these firms do not innovate. All of them, by definition, have remained highly successful, even if none has crossed the $1trn threshold. Whippersnappers, though, they are not.

The fates of the two groups couldn’t have been more different, either. In the first ten months of the year the share prices of Magnificent Seven rose by 52%. That was almost enough to offset the 2022 disastrous performance.

By contrast, the value of the aging crowd, the S&P 493, fell by 2%. What do we make of this?

Well, although the “Seven” represent where we shop, the cars and gadgets we buy, and how we socialize they don’t entirely represent the economy. Berkshire Hathaway owns companies that are at the heart of the US economy - banks, railroads, insurance companies. The rest of the index also captures real estate, healthcare, utilities … in other words, a much more complete picture of the economy.

Stripping out the “old school” businesses tells you a lot about how excited investors really are about the prospect of US economic growth. And the answer is - not very.

They’re excited about Fed stopping rate hikes. And they are excited (as much as they actually understand it) about AI, and businesses that will dominate the world because they build the most powerful Large Language Model (or feed its power via chips).

But they don’t think the rest of the economy is gonna do all that well. The real question is - can Magnificent Seven thrive in a mediocre economic growth environment?

What's happening in the markets?

This section is powered by Open AI connected to TOGGLE AI

Fisker, the American electric vehicle company, is set to announce its earnings today after the market closes.

In the midst of a competitive electric vehicle landscape, the startup has faced significant challenges, experiencing a nearly 50% drop in market value year to date. Compounding its recent struggles, the company's stock plummeted by 16.52% in the past week, triggered by a last-minute rescheduling of its earnings call.

Today's earnings report is pivotal, representing a potential turning or breaking point for Fisker. Analysts are anticipating revenues of $109 million and an EPS of $-0.18 for the quarter.

However, historical data indicates that Fisker's stock tends to decline after earnings announcements, regardless of the outcome. The company's fortunes could change if it manages to surpass revenue expectations for the first time and successfully meet its production targets for the year.

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Earnings Update: Sun Life Financial reports tonight

sun life financial

Sunlife has been diversifying its business across the globe and expanded its U.S. footprint by acquiring DentaQuest, which helped the company report better-than-expected profits last quarter.

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.

Asset Spotlight: Improving analyst expectations for Microsoft

msft analyst expectations

Toggle analyzed 11 similar occasions in the past where analyst expectations for Microsoft's EBITDA 12M Forward Growth improved and historically this led to a median increase in the stock's price over the following 3 months.

Read full insight!

General Interest: We perceive small numbers differently

small numbers

More than 150 years ago, the economist and philosopher William Stanley Jevons discovered something curious about the number 4.

While musing about how the mind conceives of numbers, he tossed a handful of black beans into a cardboard box. Then, after a fleeting glance, he guessed how many there were, before counting them to record the true value.

After more than 1,000 trials, he saw a clear pattern. When there were four or fewer beans in the box, he always guessed the right number. But for five beans or more, his quick estimations were often incorrect.

Basically, a handful is exactly the most our brain can process. The discovery that the brain has different systems for representing small and large numbers provokes new questions about memory, attention and mathematics.

Read more here on Quanta.

Daily Brief - 🌩️ What if you take out Magnificent 7?

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