Magnificent Seven Correlation with S&P 500 Turns Negative, Valuations Under 25x
The Magnificent Seven index, including Alphabet, lost its positive correlation with the equal-weighted S&P 500 on Feb. 23. Group valuations dropped below 25 times estimated earnings from nearly 33 in October, while earnings growth is forecast at 19% in 2026 versus 14% for the broader market.
1. Correlation Shift
Since Feb. 23, the rolling correlation between the Magnificent Seven index and an equal-weighted S&P 500 has fallen below zero, ending a three-year pattern of close alignment and signaling diverging performance between Big Tech and broader market sectors.
2. Valuation Reset and Growth Forecast
Valuations for the Magnificent Seven have reset to under 25 times estimated earnings, down from nearly 33 times in October, while consensus forecasts project 19% earnings growth for the group in 2026 compared with 14% for the rest of the S&P 500.
3. Spending Pressures and Risks
Heavy capital expenditures on artificial intelligence infrastructure are weighing on free cash flow for major members such as Alphabet, Microsoft and Amazon, creating execution and profitability risks even as long-term growth expectations remain elevated.