There are always narratives that dominate markets. There was the first Trump Administration which featured tariffs from the implementation of taxes. There was the utter collapse of anything which required in person contact. It looked like naysayers would have their day. In the end, they did not.
There are many uniquely brilliant parts of the US stock market. It has the most innovative and interesting companies on the planet alongside an incredibly dynamic capital market. That is not something to scoff at by any means.
But Covid revealed something far more important about the US equity markets and the companies that make it up. They were ready for any economy that came their way. Lockdowns? They provide the entertainment and deliver the goods to your home. Recovery from lockdowns? A touch rocky.
Until AI. The largest companies in the US were looking for their next big thing. AI was it. NVIDIA has obviously been the largest beneficiary in terms of market returns. But it was far from the only one. Alphabet and Meta had dramatically cut headcount as the COVID boost waned. When the AI and advertising spend increased, so too did their profits.
It was not simply big tech either. After the Mag7, there are the “next 7”. And it’s a fairly diverse group. There is Visa (a consumer payments company) and JP Morgan. Neither of those would be doing well in slowdown. Then there is Berkshire Hathaway, a company run by a notorious tech skeptic.
Simply put, the Mag 7 have had tailwinds on multiple occasions over the past several years. Maybe it’s time to look at the next 7.