Why it may be time for the Magnificent Seven to break up

Stocks may be in for a little scare heading into 2024, with Interactive Brokers Chief Strategist Steve Sosnick stating the "setup isn't great." Sosnick went on to convey hesitancy over the strength of the Magnificent Seven tech stocks — comprised of Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA) — and whether they should be grouped together at all.

"At this point, you can't look at them as seven stocks together," Sosnick explains to Yahoo Finance about the mixed earnings results from Big Tech players. "Tesla is, I think, at risk of being kicked out of the club right now because they've been really underperforming since their earnings have come out."

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

This post was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: The stock market could be more of a trick than a treat.

This October, major averages remain on pace to end the month in the red as bond market volatility and conflict overseas contribute to the market downturn.

Our next guest remaining cautious on what lies ahead for stocks heading into the final months of trading.

For more, we're joined by Steve Sosnick.

Interactive Brokers chief strategist.

Steve, always a pleasure to get some of your insights and grab some time with you here early morning, so thanks for joining us.

First and foremost, walk us through this.

I mean, of course, we put the Halloween spin on it, the more trick than treat here, but walk us through your thesis and how you're looking at the last two months of this year and what type of activity it could permeate over into the beginning of 2024.

- Good morning, Brad.

You know, the way that I'm looking at it right now is we have-- you know, we're in the setup now where this is likely to be, barring something crazy this afternoon, our third straight month where we've seen lower highs and lower lows.

That is, kind of, the definition of a downtrend when you start to see it three months in a row.

Now, does that mean we're, you know, going to plunge from here?

Not necessarily, but the setup isn't great.

At this point, I think, now the onus is for the market is to prove that we've bottomed and can have a lasting rally yesterday's jump notwithstanding.

You know, we do tend to get very sharp rallies when you're in a bit of a correction, you know, or bear market actually.

We're not in a bear market, but you know, it had that bear market rally tone to it.

So right now that's, kind of, my concern is just the trend is not favorable.

And we're starting to see erosion even in some of the Magnificent Seven, which makes me concerned that if, you know, the Magnificent Seven shrinks to a big-- you know, to a big six or big five, whatever you want to start to call it, that's got some interesting dilemmas ahead for the stock market.

DIANE KING HALL: Steve, you've read my mind.

I was literally thinking about the Magnificent Seven.

And I want to ask you, is that the safest space within equities as you head through the balance of the year?

STEVE SOSNICK: Diane, I'm going to have to go with no on that one.

I think that, you know, some-- I think at this point, you can't look at them as seven stocks together.

We'll learn a lot more when Apple comes out, but we've saw some very mixed results from them.

We saw Alphabet disappoint.

We saw Microsoft, you know, do very well.

Amazon did well, but they've got an extraordinarily high valuation.

Tesla is, I think, at risk of being kicked out of the club right now because they've been really underperforming since their earnings have come out.

And Nvidia, we won't hear from them for a couple more weeks, but, you know, it could-- that chart is, kind of, almost looking like a head and shoulders.

I hate to draw head and shoulders prematurely, but there are some real risks here.

And these stocks are expensive.

It's not like you're taking a risk on a stock that's got a very affordable valuation.

For the most part, you've got these stocks trading with 25, 27 forward PEs.

You've got the other 493 trading with around a 16, 17 PE and that's a big valuation gap.

And that's the risk for investors if they just, sort of, decide that these are the paragons of safety.

Some might be, some might not.

And we'll learn more from apple and later Nvidia.