Two years ago this month, we saw the ascendance of what would ultimately become the “Magnificent Seven.” I recall the moment well. I was down in Florida, trying to get a few days of sun with my wife, Lisa, and next thing I know I found myself buying makeup at Target to be able to do the Morning Meeting with my partner, Jeff. Silicon Valley Bank had just collapsed, and things were just too crazy not to try to make sense of the morass for Club members — even as I was trying to make sense of things for myself. Foremost, I didn’t want to look washed out on a Zoom call. Thank heavens for E.l.f. Beauty . The time period right after the run on Silicon Valley Bank is now known as the mini bank crisis. That seemed like a huge deal at the time. However, I think of it as something else, something far more important than the collapse of a couple of ne’er-do-well banks. We were witnessing the birth of large-cap tech supremacy, the start of the two-tiered track of stocks. One was made up of sainted tech behemoths and the other consisted of every other stock out there. We didn’t just anoint seven extraordinary companies. We decided that these particular techs had become exempt from the cyclicality that had formerly trapped them. We granted these hitherto cyclical companies secular growth status — seemingly making them safe-haven investments even if the mini bank crisis resulted in a U.S. recession, a prevalent view at that moment. These companies had the firepower, the balance sheet and the products that freed them from the vicissitudes of the world’s economies. We gave them immunity right on the spot. At the time, we were all focused on how much rot there might be in the banking system because nothing just impacts one bank, does it? The worry was real, and for many, it was a brand new kind of disaster. It sure wasn’t my first bank failure rodeo. That came in 1984 with the collapse of Continental Illinois, the kind of bank that reminded you not to be too chauvinistic about New York. There are tremendous financial institutions throughout what we disparagingly and haughtily called “the heartland.” Until the heartland’s best went under and regulators had to step in, that is. The fall of Continental Illinois — an incident that popularized the phrase “too big to fail” — tested the market’s resolve like no other since the tremendous bull market began. It easily eclipsed the failure of Oklahoma City’s Penn Square Bank two years before. We didn’t know what huge bank runs meant, other than to get out of the market now. That’s what happened then, and it’s still happening. The drill looked like this: We sold, then waited to see the rest of the dominos fall because, we thought, all banks were linked. Again, we still think that. Few thought Continental Illinois was an outlier. Still, as would always be the case from then on, the entire market took a header, and we waited at lower levels for all stocks to bottom. When no other banks failed, when there was no follow-through, we bought everything — frantic buying in order to get back in the game. And that became the pattern. First, a bank fails. We sell and wait. When we get an all clear, we come back with a vengeance. No stock was spared from the drill because no company would be spared from the ensuing recession. So, we had huge selling in 1990 as the savings-and-loan crisis unfolded. It took a little while to work through, but then everything rallied in a fantastic series of days where your year could have been made. The internet crash left a lot of wounds, including some financials. When the bubble popped, we had a gigantic sell-off, but within a year, the big consumer packaged goods and drug stocks in the S & P 500 rallied, even as tech was held back as too cyclical. It took ages for the highly cyclical techs to return to the fray. Only in the 2007-to-2009 period did we see something so frightening that it took everything down. The Great Recession destroyed almost all the financial stocks and didn’t spare tech. If you didn’t take your money out at the start, the S & P 500 lost roughly 50% peak to trough. Tech fared miserably during that horrendous time period. Why not? The sector was highly cyclical, no reason for an exemption. The crisis took forever to resolve. It didn’t end until Federal Reserve Chair Ben Bernanke went on “60 Minutes” of all places and drew some sort of line in the sand to stop the remaining financial dominos from falling. We may forget, but tech was savaged as if it were nothing more than a gigantic cyclical morass. We never rallied like crazy. Then, at the beginning of 2013, we introduced the FANG acronym , and we pondered whether Facebook (now Meta Platforms ), Amazon , Netflix and Google (now Alphabet ) might be immune from an economic downturn because they represented the future. It took years and billions upon billions in capital raised before the rest of the stock market recovered. The scars ran deep. Midlevel portfolio managers graduated to the top of the heap, and they were accepting of a bank linkage to an imminent recession. And so, when Silicon Valley Bank went under, we immediately reverted to the old drill of selling everything to see how the carnage played out. All stocks were supposed to go down until the smoke cleared and we were confident that the contagion isn’t viral. And then we were supposed to rally like crazy, the pre-2007-to-2009 paradigm. It didn’t happen, though. Sure, many stocks went down. However, there was this weird amalgam of stocks worth hundreds of billions of dollars, and even a couple of trillionaires, that held up OK. Buyers took money from all other stocks and bought seven stocks like crazy as if they were some sort of exchange-traded fund. The “Magnificent Seven” was born. That’s when they became titans. That’s when Alphabet, Amazon, Apple, Meta, Microsoft , Nvidia and Tesla divorced themselves from the rest of the market — or, more accurately, the big institutions filed for divorce on behalf of the sainted seven. For the Club, we own all of them but Tesla. The insane divergence took me by surprise. I remember frantically trying to get my Florida makeshift studio set up while I watched CNBC and saw the strangest thing occurring in the crawl, that line of stock prices underneath the picture. As the futures rained down upon all common stocks, we had these Stonewall Jackson-like moves from what looked to be a half-dozen stocks. These big tech company stocks stood there no matter what kind of shellacking the futures dealt us. By the time we were ready to do the broadcast, I couldn’t believe my eyes. These stocks were actually going higher. They were rallying. I scream at the TV a lot when I am at home and the market is open. I scream when I see moves that lack any logic. At that moment, I couldn’t for the life of me figure out what the heck was happening. Couldn’t these buyers wait for the collapse of all stocks, as had been the case since 1984? Just wait. You will get your chance. Wait! Better prices were coming. Never before had a group of stocks been able to withstand concentrated shelling by the S & P futures. We now all take all seven for granted, even as these days the “Mag Seven” grouping has overstayed its usefulness because the performance of the stocks has become disparate. But when you first saw these stocks peering up from the rubble and then running roughshod over wave after wave of futures selling, it made you ponder how the heck did these companies become untethered from the rest of the market and, more importantly, from the economy? Didn’t they have at least some kind of economic sensitivity if we were about to have a recession? Was their growth so secular that they could handle even a bank-led decline, the kind of which typically produced days, if not weeks, of tech selling? Suffice it to say that by the end of my stay in Delray Beach, the “Mag Seven” was born — and really only the seven — and there was no turning back for these stocks, regardless of what happened to any of the banks. We didn’t even wait to see the denouement. These stocks were starting their march to immunity. Fast forward, and now we are enduring, at least until the rally on Friday, another market downturn. This time, it’s manufactured by President Donald Trump , who I think is right to try to upend a 50-year course — started during the Nixon era— where our trading “partners” have abused us by not letting us sell into their countries while we take their products almost tariff free. We had a simple bargain, “Americans like cheap goods,” and they were willing to sacrifice the workers of whole towns, if not cities, to get those cheap goods. But Trump seems to be courting a recession. He has implored us to steel ourselves for some economic disruption . The focus right now is on Canada, an erstwhile friend, who has had enough of Trump after the surprise labeling them as fentanyl kingpins and smugglers of natural resources. It doesn’t matter that we made a deal with Canada because we didn’t have, or no longer had, the capacity to make enough of these goods. We will shoot ourselves in the foot with a tariff on our only real source of aluminum, but we won’t initially feel it. We will feel it if Trump slaps a big tariff on lumber because that is still an integral part of any homebuilding operation. Maybe one day we will like all-concrete houses. So far, not likely. Home prices aren’t in the consumer price index; only rent is. But we know that home prices have been going up since the Covid-19 pandemic. Cars, homes, ticket prices, insurance and medical care are still way up there. So, the president could manufacture a recession with the consumer stopping her purchase of everything including more expensive homes. Trump is trying to undermine Fed Chair Jerome Powell’s fight against inflation. By the time the Fed’s policy meeting concludes Wednesday afternoon, I would not be surprised if Trump is saying Powell should step down if he doesn’t lower interest rates — though we know Powell has vowed to maintain the Fed’s independence. I could also see Trump ramping up his threats of 25% tariffs on automobile imports from countries such as Germany, Japan and South Korea. The European Union’s 10% tariff rate on vehicle imports is well above the 2.5% rate the U.S. has on imported cars (trucks get different treatment). This all brings me to the big question: Will there be any Stonewalls around this time? Will the companies in the “Mag Seven” — excluding Tesla, of course — be able to make a stand? Remember, the reason they made a stand in 2023 was a belief that these companies would triumph over any recession, regardless of its causes. We forget, sometimes, that’s why we anointed them, didn’t we? Right now, only Apple seems to be in serious earnings trouble, and that’s because it missed some upside because of miscues on artificial intelligence and Siri and some nationalist pressure from China. As I said on our Monthly Meeting on Thursday, I do not think Apple is done going down because no stock with a price-to-earnings ratio north of 30 — where Apple traded before this recent rough patch — can withstand estimate cuts. But the rest? What a contrast between now and 2023. Until Friday’s rally, these were among the worst-acting stocks in the market of late. Still, though, let’s ponder that. This is a group of stocks hand-picked by the big trigger-pullers two years ago this month because they were deemed recession-proof at a time impending recession concerns. Remember, I am not saying, “Don’t need to sold.” I am saying people thought they could actually be bought because they would still be able to produce great numbers in a recession. Now here we are again, and we seem to doubt that any of them can handle a recession. It was just two years ago that we decided they were immune to a downturn. Now they aren’t? Now they are more susceptible than any other stocks, as their recent performance would indicate? Was it always just conceptual that they could? Or were their businesses doing so much better in March 2023 than they are now? One could argue that it wasn’t their recession-proof characteristics that drove the buying two years ago. Rather, one could argue they were rallying because the generative AI industrial revolution was getting going, just a few months after ChatGPT was launched and took the world by storm. That’s what may have spurred the exceptional buying, not their newfound remarkable powers. That’s possible. Maybe it is different this time? Maybe they are weaker. Maybe because people fear the DeepSeek effect ? Or, perhaps, judging by the incredible shrinking price-to-earnings multiple being placed on Nvidia’s earnings, we have decided that not only is that company charging too much for its chips, but we also may not even need nearly as many as we thought. Plus, maybe there are worries about Microsoft and Amazon’s ability to monetize all their AI spending. Meta has appeared to be able to do it. Apple sure hasn’t. Tesla? Theoretically, but it is strictly theoretical as Elon Musk is busy in Washington with the Department of Government Efficiency. Alphabet’s Google may be a colossal loser, and those Google Search dollars could be vanishing. All of this is worth pondering because we don’t seem to have a “Mag Seven” this time around — or, at least, not one that has surfaced over the past three weeks. Safety is mighty hard to come by. The consumer discretionary sector is just awful now that we lost the travel bull market after Delta Air Lines and American Airlines cut their earnings outlooks. Drug stocks lack growth except Club name Eli Lilly , which is coming down because it has no dividend protection. Transports? Bear market. Banks? The wave of initial public offerings and mergers and acquisitions has been slower to materialize. I can go down the list. Unsurprisingly, though, the health-care middlemen are holding up all too well. That’s the likes of McKesson , Cardinal Health and Cencora . (I wish we had bought one of these but I didn’t think it would come to this so fast! Make a mental note to put one of them in the bullpen, perhaps McKesson). So what do we do? With my trusted momentum indicator, the S & P Short Range Oscillator deeply oversold at minus 5.95%, I think we could get a reprieve for a couple of days. We have to wonder whether someone — anyone at all — can get to Trump and tell him that, perhaps, it is time to do less posting and more quiet threatening to get some things done. We don’t want to get to the point where the world calls him out, and there’s no returning from the recession that he has created with his actions. We want Teddy Roosevelt, not Dr. Strangelove. Of course, there is a chance that, unilaterally, every country on earth decides it is time to import things from the U.S. I am calling that unlikely. There is a possibility that each of the large auto companies announces that they are building more plants in the U.S. and closing ones they opened in Mexico. I am calling that unlikely. What is likely is that the American people will not be able to afford foreign cars with higher tariffs or American-made cars with prices that are taken up to the foreign car price umbrella. Used cars will go up big and auto plants will be idled like mad. That’s all the bad news. The good news? After the auto industry is taken care of, there’s nothing left. There will be no more discussion of tariffs because everything will be tariffed. The rest of Trump’s reign will involve getting tariffs against us lowered and some new plant construction. And which companies will be able to reassert themselves? I am willing to be so bold as to say that then we will be back in March 2023. Then we will have seen prices come down enough that six of the “Mag Seven” will start this whole crazy process all over again from levels that I no longer think are that far from here. Maybe they are, again, the ones to buy and that the non-cyclicality theme will come to the fore regardless of AI. Now, I don’t want to make a case for buying these six bedraggled stocks just yet, certainly not the free-fallen Apple. I am just putting it in your head that if we didn’t think they would collapse into recession along with the rest of the market two years ago, and we still believed in AI — as I do as I head out to Nvidia’s GTC conference — then the “Mag Seven” ex-Tesla seem likely to be the only logical places to hide and then to buy. Lots of ifs? Lots of cul-de-sacs? Sure, but a replay of 2023 might be in hand if the president wants to cut the ribbon on the manufactured recession. It was crazy back then. Would it be any more crazy now? I am looking for them once again to be the safe-haven stocks. After Wednesday, when I expect there to be fireworks, those are the ones I want to buy. They are the most hated in the market and, therefore, maybe we have the most perfect set-up since March 2023. (Jim Cramer’s Charitable Trust is long AMZN, NVDA, META, GOOGL, MSFT, LLY and AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Justin Tallis | AFP | Getty Images
Two years ago this month, we saw the ascendance of what would ultimately become the “Magnificent Seven.” I recall the moment well. I was down in Florida, trying to get a few days of sun with my wife, Lisa, and next thing I know I found myself buying makeup at Target to be able to do the Morning Meeting with my partner, Jeff. Silicon Valley Bank had just collapsed, and things were just too crazy not to try to make sense of the morass for Club members — even as I was trying to make sense of things for myself. Foremost, I didn’t want to look washed out on a Zoom call. Thank heavens for E.l.f. Beauty.
