Things could be turning around for the mega-cap Magnificent Seven stocks, and a reversal of their recent downtrend bodes well for US stocks as a whole.
The group of high-flying tech names — Meta, Microsoft, Nvidia, Apple, Alphabet, Amazon, and Tesla — has had a brutal start to the year, with Meta the only member of the cohort to see a gain year-to-date.
In a recent note, analysts at Morgan Stanley said they believe the group’s outlook is improving. That also happens to be great news for the broader stock market, which has relied heavily on tech leadership to propel the bull market in the last two years.
“In our view, one of the reasons why we’ve seen capital rotate to international markets (Europe, in particular) is that the high quality leadership cohort of the US equity market began to underperform. Thus, if this group regains relative strength we could see a rotation back to the US,” the bank added.
Analysts led by Morgan Stanley’s chief investment officer, Mike Wilson said that strength in the Magnificent Seven group could draw investors back to US stocks after the latest correction.
“Stronger seasonals, lower rates, and oversold momentum indicators support our call for a tradable rally from ~5500,” Wilson and other analysts wrote on Monday of their outlook for the S&P 500.
“Mag 7 earnings revisions look like they may be bottoming, which could also support a rotation back to the US,” they later added.
The bank, which said last week it believed the worst of the sell-off was over, pointed to recent declines in the US dollar, which has historically had a positive impact on US corporate earnings.
The value of the greenback has trended lower over the past week as traders expect interest rates to drop in the US. The US Dollar Index, which measures the value of the greenback against a basket of other major currencies, traded around 104 on Monday, down around 5% from a peak of 109 in early January.
A weaker currency makes US goods and services cheaper for other countries, which is positive for earnings.
In the past, when the dollar has weakened against the euro, the ratio of S&P 500 to MSCI Europe earnings revision breadth has trended higher, a sign that corporate earnings in the US are strengthening relative to earnings in Europe.
FactSet/Bloomberg/Morgan Stanley
“Relative underperformance of the US has been tied to weaker relative earnings revisions, which have partially been due to the lagged impact of a strong dollar in 4Q,” Morgan Stanley said. “This should offer a tailwind for US revisions and is one reason we think relative performance versus international developed equities can swing back in favor of the US in the near-to-intermediate term.”
The earnings outlook for the Magnificent Seven stocks already looks to be improving. Earnings revisions for the group of mega-cap tech names appear to be “stabilizing” and potentially approaching a bottom, the analysts said.
FactSet/Morgan Stanley
US stocks saw the biggest weekly inflow so far in 2025 last week, with investors pouring a net $34.1 billion into US stocks, according to Bank of America data.
Shares of the Magnificent Seven group, meanwhile, have started to perk up after their weekslong sell-off. The group has struggled so far in 2025 amid overarching concerns over US tariffs and China gaining momentum in the AI race.
On Monday, some of the biggest losers in the group year to date rallied, with Tesla stock jumping nearly 10%, Nvidia up 4%, and Alphabet up 2%.
