History shows stocks will still go up even if the ‘Magnificent 7’ lose steam

The S&P 500 (^GSPC) is hovering over 5,000 for the first time ever. And once again, the stocks leading it higher are the biggest members of the benchmark average.

Amazon (AMZN), Meta (META), Microsoft (MSFT), and Nvidia (NVDA) have produced a nearly 20% return to start the year, per analysis from Yahoo Finance’s Jared Blikre. The returns from these four stocks alone account for roughly 69% of the S&P 500’s gain this year.

But not all of the so-called “Magnificent Seven” tech stocks are off to a strong start. Apple (AAPL), Alphabet (GOOGL, GOOG), and Tesla (TSLA) are having a choppier start to the year. For some on Wall Street, this has become a concern as a shrinking number of stocks are leading the major average higher.

Fortunately for investors, even if top stocks are peaking, the market should probably still go up.

A recent analysis from BMO Capital Markets chief investment strategist Brian Belski showed that even when the top stocks driving an outsized part of the market action fall off, returns over the next year for the index historically have been quite good.

A chart from Belski shows that since 1992, on average, the S&P 500 has risen 14.3% in the year following a peak in contribution from the top 10 stocks in the benchmark average. The only time the S&P 500 delivered a negative return in the next year was in 2001 amid the fallout from the tech bubble.

“While some investors may be concerned that the market is likely to struggle without these stocks leading the way, our analysis shows that the S&P 500 has performed just fine following peaks in relative performance of the 10 largest stocks,” Belski wrote in a note to clients on Tuesday.

Goldman Sachs equity strategist Ben Snider pointed out that while the degree to which top stocks are dragging the major index higher is currently abnormally high, the idea that a few winners lead the S&P 500 gains isn’t a new concept. In fact, Snider argued, in the long run it’s been a typical feature, not a bug, of the…