Chart Talk: January 3rd, 2024


Priorto 2020, the “The Magnificent 7” was a Western movie starring Steve McQueen andYul Brenner (of “King and I” fame).  Today,those that watch the financial markets recognize the Magnificent Now as theseven stocks that have far outpaced the S&P 500 as well as the NASDAQComposite over the past four years.   Thesestocks include: Meta (META), Amazon (AMZN), Apple (AAPL), Alphabet (GOOGL),Nvidia (NVDA), Microsoft (MSFT) and Tesla (TSLA).  The chart below illustrates just how much theseseven have outperformed.  Since the closeof 2019 the Magnificent 7 has risen 261% compared to 65% for the NASDAQ and 47%for the S&P 500.  In other words, ifyou didn’t at least market weight your investments into some or all of these 7,you most likely severely lagged the overall indexes.  For example, the INVESCO S&P 500 EqualWeight ETF (RSP) returned 35% over that same period, 12% below the market capweighted SPDR S&P 500 ETF (SPY).

Although we do believe that the Magnificent 7 has gotten abit ahead of itself as it carries a current Price-to- Earnings ratio (P/E) of over30, this as compared to the S&P 500, which has a P/E Ratio of closer to 22,it is important to remember that although it is only seven stocks, they accountfor more than 28% of the S&P 500. After the past four years, it may be prudent to selectively trim some ofyour larger holdings if they have become outsized relative to your total portfolio.  The tax ramifications of such a move shouldalso be taken into consideration.  Regardlessof the potential for a short-term pullback, we are steadfast in our belief thatthey should remain the cornerstone of an equity portfolio.  Price-to-Earnings is only one metric we lookat when evaluating a stock.  Althoughcurrently expensive on a fundamental basis, these 7 stocks will continue to beleaders in their respective industries and with a long runway in regard toArtificial Intelligence (AI), the future remains bright.  Although trimming is always prudent, webelieve fundamental overvaluation is not a good enough reason to do anythingmore than merely trim the most innovative and best companies in the world.  

This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.

Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”

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