The Magnificent Seven's Mirage: Are We Ignoring the S&P 493?
The market's been flashing green lately, but let's dissect what that really means. The S&P 500 and Dow are inching upwards, futures are looking optimistic, and even the VIX (the "fear gauge") is taking a breather. Overseas, the picture's even rosier, with European and Asian markets showing solid gains. Bitcoin's flirting with a new stratosphere at $106K. But before we pop the champagne, let's pull back the curtain.
The Tale of Two Economies: Magnificent Seven vs. The Rest
We keep hearing about how earnings expectations are up. True, but for whom? The "Magnificent Seven" (Apple, Amazon, Google, Meta, Microsoft, Nvidia, and Tesla) are soaking up all the sunshine, while the S&P 493—the other 493 companies in the index—are getting rained on. Think of it like this: seven yachts are sailing smoothly while the rest of the fleet is battling headwinds.
Here's the kicker: Between October 2025 and April 2025, overall consensus EPS (earnings per share) estimates for the S&P 500 dropped by approximately 0.2%. Sounds negligible, right? But dig deeper. During that same period, the Magnificent Seven saw their estimates increase by a little under 4%, while the remaining 493 stocks in the S&P 500 experienced a drop of approximately 1.5%. That's not just a discrepancy; it's a divergence.
This isn't just about numbers; it's about a fundamental distortion in the market. Are we really in a broad-based recovery, or are we witnessing a concentrated surge driven by a handful of tech giants? And if it is just those seven, what happens when (not if) the hype cools down?
K-Shaped Recovery: A Dangerous Dependence?
The historical context paints an even more concerning picture. We're supposedly in a "K-shaped" recovery. This means the wealthy are doing just fine, fueled by soaring stock prices (especially in AI-related companies). Lower-income folks? Not so much; they're feeling a recession.
Here's the uncomfortable truth: according to Moody's, this "wealth effect" accounts for nearly half a percentage point of real GDP growth and one-fourth of the economy's overall growth. In other words, the economy is increasingly reliant on the spending habits of the affluent. What happens when the stock market hiccups and those affluent consumers tighten their belts?
I've looked at enough economic cycles to know that relying on a small group for economic stability is a risky game. It's like building a skyscraper on a foundation of sand.
Torsten Slok, chief economist of Apollo Academy, nailed it with his note titled ‘K-Shaped Economy for Firms’. It’s not just individuals feeling the divide; companies are too. The Magnificent Seven are pulling away, leaving the S&P 493 struggling to keep pace. The S&P 500 is also in a K-shaped economy, says Apollo, with a widening gap between the winners and losers - Fortune.
But how was this data gathered? What methodologies are being used to calculate these EPS estimates, and are they truly reflective of the underlying economic reality for the S&P 493? I'm not saying the numbers are wrong, but it's always worth questioning the lens through which we're viewing them.
The Illusion of Growth?
The market's up, no doubt. But it's a Potemkin village. Behind the gleaming facade of the Magnificent Seven lies the struggling S&P 493. And a K-shaped recovery built on the "wealth effect" is a fragile foundation for long-term prosperity.
The "Rising Tide" Myth
The common saying is that a rising tide lifts all boats. But in this case, it seems more like a luxury yacht lifting while the rest are stuck in the mud.