The Magnificent 7 Trade Is Cracking — And The 'Great Valuation Rotation' Is Here

Benzinga_recent_news02-19

For much of the past three years, the trade on Wall Street felt almost mechanical: buy the biggest technology names and let compounding do the rest. The strategy delivered. Between late 2023 and late ...

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But in 2026, the strategy is starting to break.","collect":0,"end_time":0,"defaultTopTitle":"benzinga.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"MAGS":"Roundhill Magnificent Seven ETF"},"translate_title":"Magnificent 7交易正在破裂——“估值大轮换”已经到来","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"MAGS":0.83},"content_text":"For much of the past three years, the trade on Wall Street felt almost mechanical: buy the biggest technology names and let compounding do the rest.\nThe strategy delivered.\nBetween late 2023 and late 2025, the Roundhill Magnificent Seven ETF (NYSE:MAGS) surged roughly 130%. \nMega-cap concentration wasn't just rewarded — it was dominant. In terms of market size, the tech elite group reached over $22 trillion, representing 35% of the S&P 500. \nBut fast forward to early 2026, and the trade that defined the bull market on Wall Street is starting to fracture.\nIn mid-February, the Magnificent Seven cohort broke below its 200-day moving average — a level that is closely monitored by investors as a dividing line between structural uptrends and potential trend reversals.\nFor the Mag-7 trade, the 200-day moving average had acted as a dynamic floor for most of the past two years. \nPullbacks toward it were consistently met with aggressive buying. Each test reinforced the narrative that mega-cap tech weakness was an opportunity, not a warning.\nExcluding the brief, tariff-driven volatility shock of 2025 — which proved temporary and quickly reversed — the group had not suffered a sustained technical fracture since 2023.\nYear-to-date performance tells the story of shifting leadership:\nFor a market that had been powered by a handful of hyperscalers, this divergence is striking. What was unthinkable just weeks ago — an out-of-tech rotation — is now unfolding in plain sight.\nThe question investors are now asking: Is this just a pause, or the beginning of a regime shift?\nAccording to veteran investor Ed Yardeni of Yardeni Research, the market may already be undergoing what he calls the \"Great Valuation Rotation of the Roaring 2020s.\"\nIn a note to clients this week, Yardeni indicated that the global rebalancing trade that began late last year is likely to extend well into 2026.\nAt the core of the shift is a reassessment of the Magnificent Seven's earnings trajectory. \nThe hyperscalers' aggressive commitments to AI infrastructure spending — once viewed purely as a growth catalyst — are now being scrutinized for sustainability and margin pressure. \nAs doubts creep in, valuation multiples have compressed.\nThat compression hasn't happened in isolation. Capital has rotated toward areas of the market where earnings momentum is improving and multiples remain more reasonable — both within the U.S. and abroad.\n\"We continue to recommend underweighting the Magnificent-7, as we have since early December,\" Yardeni wrote, highlighting that his firm also downgraded Information Technology and Communication Services from overweight to market weight at that time.\nInstead, Yardeni is leaning into what he calls the \"old economy.\" \nThe expert is reiterating overweight positions in Industrials and Health Care, maintaining a bullish stance on precious and base metals, upgrading Materials, and favoring foreign equities — particularly emerging markets.\nAccording to Adam Turnquist, chief technical analyst LPL Financial, three forces are driving the shift:\nFirst, the AI euphoria is cooling. After enormous inflows throughout 2025, investors have started questioning whether hyperscalers can sustain their aggressive AI spending, putting pressure on stretched valuations.\nSecond, money is moving toward cheaper markets. With technology accounting for a large share of the S&P 500's gains, capital is rotating into value stocks, small caps and international equities after years of U.S. dominance.\nThird, earnings growth is broadening. Rate cuts from the Federal Reserve and easing inflation are supporting stronger profit growth outside the Magnificent Seven, gradually loosening mega-cap tech's grip on market leadership.\nFor years, the Magnificent Seven weren't just market leaders — they were the market. Concentration worked, momentum reinforced itself and every dip felt like an opportunity.\nThat dynamic is now being tested.\nValuations are compressing, technical leadership has cracked and earnings growth is broadening beyond mega-cap tech. Capital isn't fleeing equities — it's reallocating. The shift appears less like panic and more like discipline returning to asset allocation.\nThis doesn't necessarily signal the end of the Magnificent Seven's dominance. But it does suggest that the era of effortless outperformance driven by a handful of hyperscalers may be giving way to a more balanced market.\nIf the past three years were defined by concentration, 2026 may be defined by rotation.\nPhoto: Shutterstock\nTo add Benzinga News as your preferred source on Google, click here.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"tenantId":"TBGLOBAL","deviceId":"web-server-community-laohu8-v3","version":"4.36.2","shortVersion":"4.36.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2612841447","isCrawlerRequest":true}