2023, The Year of the Magnificent Seven

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      In markets, 2023 has been the year of the magnificent seven, a group of tech stocks that has dominated US and global markets, attributing much of the S&P 500 total return for the year. The group of seven consists of Alphabet (Google), Amazon, Apple, Microsoft, Nvidia, Tesla and perhaps 2022’s most hated stock Meta. For a brief time at the start of the year the consensus call had been for recession and another down year for stocks. It quickly faded, and a major rally would start in mega cap (large companies) technology shares. At first, the reasoning was the companies shared defensive qualities. This would quickly shift to the AI (artificial intelligence) investment theme which would remain prominent over the course of the year. There is also an underreported quality all magnificent seven companies share; they all significantly underperformed the market in 2022.

    By spring, the magnificent seven label had stuck and turned into an investment theme, “Buy the magnificent seven.” Up through the summer these seven stocks explained nearly all the S&P 500’s total return. At the beginning of the fall, market performance broadened, including more stocks leading the market higher. Charles Schwab has the magnificent seven rising more than 100% thus far this year from the leader Nvidia increasing over 200% to the group laggard, Apple appreciating 49%. Collectively the seven companies constitute 30% of the S&P 500 index. Stripping the seven names in what Bloomberg has dubbed the “S&P 493”, the index is up 11% and with them the S&P 500 is up more than double, 24%.

    At Curran, we own the magnificent seven across different strategies. Our flagship Core Growth strategy, which most of you own, has positions in five of the seven: Alphabet, Amazon, Apple, Nvidia and Meta. As a group we like them not because they have proven to be the flavor of the year, but because they are quality companies, exhibiting little debt, resilient earnings growth, and historically strong shareholder returns on equity. As investors we are not necessarily fond of seeing the companies we own and like become financial media darlings, garnering nicknames such as the magnificent seven. It is why some diversification across companies in your portfolio is prudent and why we do not chase performance. For instance, we have owned shares in Alphabet, back then Google, since 2009. On the shorter end, we have owned Nvidia for only a year. Our average holding period for the five companies collectively is 10 years.      

    Historically, the seven companies have been strong performers long before the current year. This year they happen to have exceptional performance in a year with narrow market leadership. The key to successful investing is to have a sound investment philosophy that identifies traits commonly found in great companies such as the seven. To chase them for no other reason than they have gone higher is not sound investment reasoning. At Curran, we want to recognize quality companies early in their growth and own them for several years. 2023 happens to be a year in which our stock selection was richly rewarded, and as I noted coming off 2022, a year when many argued, it was time to sell. Successful investing requires discipline and patience. At Curran we aggressively rebalanced coming off a weak year for the magnificent seven and bought more shares of Alphabet, Amazon and Nvidia. As a rule, we trim winners and add to our positions in companies that have recently been out of favor, and we continue to like. We, however, do not make market forecasts at Curran and look forward to another promising year for markets in 2024.

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Cheers,

Kevin T. Curran

Co-CEO & Chief Investment Officer