As the Magnificent Seven Struggle, How Will the Rest of the Market Act?

Disappointing earnings reports from Alphabet GOOGL and Advanced Micro Devices AMD are weighing on the market on Wednesday morning. Google not only reported slowing in its cloud business but is increasing capital spending to keep pace in the AI war. AMD is lagging in data center sales as Nvidia NVDA continues to dominate.

The Magnificent Seven MAGS stocks are no longer the glorious growth engines they were a year ago. The cloud business is lagging, and even more money is being spent on AI development despite the development of DeepSeek.

Amazon AMZN will post results on Thursday night, which will be a further test of the magnificence of the Mag 7, but the group has clearly lost momentum and is no longer going to lead the market like it once did.

The key question for the market is how the rest of the market will act as the Mag 7 sorts out its problems. There has been better breadth, the equal-weight indexes are exhibiting relative strength, and small-caps are seeing some flashes of rotation.

The bears are focused on the valuation and struggles of the Mag 7 and don’t seem to appreciate that outside of that group, both valuations and technical conditions are not bad.

While stock pickers have been busier lately, the tariff issues are causing top-down pressure that makes it more difficult. Later this week, the January jobs report will be issued, and that could raise economic concerns again.

Although the Mag 7 names are a problem, there is still hope that there will be good pockets of stock-picking action for speculative traders. There are plenty of obstacles that will create volatility, but they may present opportunities for the most aggressive traders.

In the early going Wednesday, the Nasdaq 100 QQQ is indicated lower while the Russell 2000 IWM is indicated higher.

At the time of publication, Rev Shark was long NVDA.