When the financial markets try to send investors a message, it is very rarely done straightforwardly. Instead of letting everyone know that the path forward is higher or lower, hidden messages start to show up everywhere else, to be decrypted by only those investors who know what they’re looking for and the reasons behind the factors.
Today’s market action has to focus on the so-called “Magnificent 7” stocks, which carry most of the weight in the S&P 500 in terms of positioning and sentiment. These stocks create a sense of importance and a new driver for investors to keep track of in the coming months and quarters. There is an opportunity to cover some portfolio risk and potentially save all the gains that have been made since the COVID-19 pandemic’s bull run.
By dissecting the price action and implied outlooks in names like NVIDIA Co. (NASDAQ: NVDA), Apple Inc. (NASDAQ: AAPL), and even Alphabet Inc. (NASDAQ: GOOGL), investors can break down what might be expected from the broader S&P 500 index and portfolios overall. By the time all of these terms become clear in the market, it will already be too late to react.
This is the time to be proactive.
Decoding Price Action and Market Sentiment in the Magnificent 7 Stocks
Before investors break down some of the more complex indicators in fundamental sentiment gauges from the market on these stocks, price action should be a great starting point (a bridge) from simpler indications into deeper potential scenarios and outcomes in the market.
However, not all price actions are created equally. There is one specific level that all investors need to keep track of in any given stock or index. That level is a 20% discount from 52-week highs or all-time highs if those have recently been made. This level typically elicits a reaction from the market to either support the price backup or abandon hope altogether.
Investors can see this in action as the broader S&P 500 breached this level only to return soaring. Yet, underlying fundamentals suggest that level will be retested once more. Regarding these magnificent 7 stocks, the story looks a bit different.
These names have breached and remained below 80% of their 52-week highs, implying that the most important names in the stock market today see no support or hope from the broader markets. This confirms that a more fearful point of view might be forming.
That being said, price action only tells investors what the present and past are like for these leaders (or former leaders); it isk ahead in the one way the market knows how to communicate its outlooks: through now time to loo price action.
Fundamentals Don’t Look so Good
Valuation multiples, specifically forward-looking multiples, are how the market lets everyone know what it is thinking. To keep things simple, investors can use current price action and levels and forward price-to-earnings (P/E) ratios in these stocks.
Starting with Apple, which shows a longer-term average forward P/E ratio of around 33.0x to 35.0x, today’s valuation of only 25.0x shows a slight discount. It is slight, but nonetheless, a discount as markets start to lose confidence in the company’s future growth potential, especially as macroeconomic views are dampened by trade tariffs.
Then there’s the massive discount in shares of Alphabet, which are now valued at a low forward P/E ratio of 17.5x, significantly below the longer-term average of 30.0x. Nearly half of average valuations show markets see no near-term recovery potential for this giant in the technology sector.
With NVIDIA, things don’t look any better. This semiconductor darling, and once the king of the market’s attention, has lost its crown recently, as forward P/E ratios fell to 24.7x compared to the long-term averages of up to 50.0x, less than half to solidify the fearful themes spreading across the market right now.
While some of this price action and valuation outlooks might be related to the current trade tariff uncertainties, there must be a broader reason to start giving up on the stocks that were once the darlings of the market, and these reasons could be linked to the economic fundamentals in the global scene.
Investors should now consider taking profits off the table. Waiting to find out why markets are discounting everything could be futile, as prices move before news comes out. They should not let it be too late to act.
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