Big Tech’s Link to S&P Breaks as Magnificent Seven Drops 7.3%
Correlation between the Magnificent Seven (including Microsoft) and the S&P 500 equal-weighted index turned negative on February 23, with Mag7 down 7.3% since October versus an 8.9% gain. The Mag7 group trades below 25× estimated profits, down from almost 33× in October and below its 10-year average of 29×.
1. Correlation Breakdown
On February 23, the correlation between the Magnificent Seven index and the S&P 500 equal-weighted index turned negative, marking only the second such occurrence since 2016. Factors include rising oil prices tied to geopolitical events, heavy AI infrastructure spending concerns and waning momentum among tech giants.
2. Comparative Performance
Since October, the Mag Seven index has fallen 7.3% while the equal-weighted S&P 500 has climbed 8.9%, reversing the 45% surge the tech group delivered in Q1 2023 versus a 7% gain in the broader market. This divergent trend echoes early 2023 when negative correlation preceded a tech-led rally.
3. Valuation Shifts
The group now trades below 25× estimated earnings, down from almost 33× in October and under its 10-year average of 29×. Scaled-back positioning has weighed on valuations but also presents potential upside as capital reallocates back toward technology.
4. Microsoft’s Implications
Microsoft, as one of the largest Magnificent Seven members, reflects these valuation and performance shifts. The company’s heavy AI spending contributes to cash flow pressure—projected as part of a $94 billion free cash flow for top tech spenders this year—but its entrenched market position could benefit if sector leadership rebounds.