The Magnificent Seven accounted for 45% of January's S&P 500 return

With a staggering $12.5 trillion market capitalization - and very likely even more following Friday's trading - the collective worth of Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL) (GOOG), Amazon.com (AMZN), Nvidia (NVDA), and Tesla (TSLA) equals the combined GDP of major global cities like New York, Tokyo, London, Los Angeles, Paris, Seoul, Chicago, San Francisco, Osaka, Dallas, and Shanghai, according to calculations by Bank of America.

However, it's essential to note that comparing market capitalization to GDP directly isn't entirely appropriate. Much of San Francisco's economic output is intricately linked to the tech giants that primarily reside in Silicon Valley, located to its south.

Bank of America analysts, led by Michael Hartnett, reveal that the Magnificent Seven contributed to 45% of the S&P 500's SPX return in January. Excluding Tesla, which has faced challenges this year, their influence becomes even more striking at 71%.

Hartnett and his team highlight a shift in market dynamics from the bond-yields-down-and-Nasdaq-up pattern seen in the fourth quarter to a Nasdaq-up-and-yields-up trend observed in the first weeks of 2024. They suggest that such price movements typically occur post-recession or during bubbles.

Their proposed strategy advocates for a balanced approach involving investments in both bubble stocks and heavily distressed assets, such as those in China or small caps.