Tuesday 22nd of January 2025
If you’ve been paying attention to financial news, you might have heard about the “Magnificent Seven” tech stocks. These are seven of the largest technology companies in the US stock market, and they’re so big that their performance can influence the entire market. Recently, these stocks haven’t been doing as well as they used to, and that’s caused some ripple effects.
The Magnificent Seven include companies like Apple, Microsoft, and Google’s parent company, Alphabet. These are the giants that make the gadgets you use, the software you rely on, and the platforms where you spend hours scrolling.
In the stock market, these companies are so massive that when their stock prices go up or down, they pull the rest of the market along with them. For example, if Apple has a bad month, it can make the entire stock market look less attractive to investors.
Recently, the Magnificent Seven haven’t been doing great. While they had a good day here and there, their overall performance has been underwhelming since Christmas. This is unusual because these companies usually perform well, no matter what’s happening in the economy.
A key reason for this change could be interest rates. Interest rates affect how much it costs for companies to borrow money and for consumers to take out loans. Higher rates often slow down the economy, which can make investors nervous. When rates go up, it’s like raising the price of a ticket to ride the “investing train”, fewer people are willing to jump on board.
Oddly enough, in this case, higher interest rates seem to have helped Big Tech, while lower rates have hurt them. That’s the opposite of what usually happens. Why? Because higher rates may signal that the economy is slowing down. In tough times, investors look for companies that can keep making money even if the economy struggles. The Magnificent Seven fit that description because they’re not as dependent on economic growth as other industries.
While the Magnificent Seven have stumbled, other industries have been shining. Energy companies, industrial firms, and banks have been doing better. These industries thrive when the economy is growing or when there’s a belief that growth will pick up.
For example, if you’ve noticed more construction or increased factory activity, that’s good news for companies that make building materials, heavy machinery, or manage energy resources. Investors see these trends as a sign that the economy might be picking up, especially with the new US administration promising tax cuts and fewer regulations.
Another big piece of news is that the US government is threatening to place heavy tariffs (taxes on imports) on goods from Canada and Mexico. These are America’s closest trading partners, so you’d think this would cause chaos in the markets. Surprisingly, the stock market hasn’t reacted much, but there are still important things to consider.
Tariffs are like a toll you pay when bringing goods into a country. For example, if a US company wants to buy lumber from Canada or cars from Mexico, they’d have to pay an extra 25% because of these tariffs. That makes these goods more expensive, which could lead to higher prices for consumers.
For the US, the pain would be less severe but still noticeable. Some industries that depend on imports, like carmakers, construction companies, and grocery chains, would need to adjust. It might take time to find new suppliers or produce these goods domestically.
The situation with the Magnificent Seven and tariffs is still developing. Even small changes in the stock market or trade policies can have a ripple effect that touches everyone’s lives, whether you’re an investor or just trying to stick to a budget.
Remember, understanding the basics can help you make informed decisions, whether it’s about your spending, your career, or your long-term financial goals.
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Sources: Bloomberg, Yahoo Finance, Marketwatch, MSCI.
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