Due to big gains in recent years, a small group of seven companies in the S&P 500 index have become known on Wall Street as the Magnificent Seven (see list of names in the above chart). This year has been a dramatic tale of two markets, with this narrow group of stocks strongly leading the way – recent weeks notwithstanding. Now representing roughly one-third of the total U.S. stock market, and roughly 1.5x the European stock market, this concentration of seven stocks has elicited memories of the internet dot com bubble of the late 1990’s. 

Similar to today’s market, in 1999, a very limited number of stocks were responsible for the majority of the gains (see chart below). In the bursting of the internet bubble, the stock prices of many non-internet-based businesses, across diverse sectors and industries, held up as the market declined from 2000 to 2003. 

Remember, the stock market is like a supermarket. Instead of buying groceries, you’re buying businesses. And not everything is a good buy. We don’t pay much attention to the average price of everything (the index). Rather, as we go shopping, we ask whether each business (e.g., food item) is worth its price.