The Mag 7's reign is ending. A top fund manager says that means trouble for the S&P 500.
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- Bill Smead warns the Magnificent Seven stocks are fading, which will weigh on the S&P 500.
- "It appears it's already cracked," Smead said of the S&P 500.
- He said the index would lose value over the next decade.
A chorus of market commentators have proclaimed the Magnificent Seven cohort is dead, and Bill Smead is joining in on the funeral dirge.
In an interview with Business Insider on Tuesday, Smead — who manages the Smead Value Fund (SMVLX), which Morningstar data shows has beaten 98% of similar funds over the last 15 years — said that the Mag 7 stocks are now on their way out of the top positions in the market.
It's become apparent in 2026 that the "Mag 7" stocks no longer move in lock-step.
Some are spending big on AI (Microsoft, Meta, Amazon, Alphabet) while others are getting a boost from that spending (Nvidia), and some have mostly stayed away from the technology (Apple). Some are up big this year, while others have floundered — as a group, they're almost entirely flat for the year, compared to the S&P 500's gain of about 10%.
The divergence in performance led Citi to say the Mag 7 is obsolete as a proxy for AI and growth trades, but Smead's view on the group of stocks, and their impacts on the broader market, is even more dire.
Given that the S&P 500 is so heavily concentrated in the largest stocks in the market — the top 10 stocks now make up 40% of the index — he's warning that the Mag 7's rollover is going to drag down the index.
The thinking goes that if investors suddenly sour on the AI trade as hyperscalers dump hundreds of billions in capex to the infrastructure buildout, the index will suffer, which will prompt investors to sell it, creating a vicious cycle.
This process may already be underway, as both hyperscalers and chip stocks have stumbled in recent weeks.
"It appears it's already cracked," Smead said of the S&P 500. "The value indexes are already beating the S&P."
"The big risk to the index is that every 10 years, the 10 largest cap companies in the world change almost completely," he continued, adding: "We've now started that process."
He said that he expects the S&P 500 to lose value over the next five- to 10-year stretch.
Data support Smead's view that the market's largest stocks often fail to stay at the top of the market.
According to a Goldman Sachs report published in July, only six top 10 companies since 1990 have managed to remain in the top 10 five years later. Research from the CFA Institute shows that only two top-10 stocks in 2009 — Microsoft and Apple — are still in the top 10 today.
History also shows that high concentration periods like today can have dire consequences for index-level returns, according to the CFA Institute.
"Not only do periods of high concentration and relative valuations lead to heightened volatility, but they have also led to disappointing long-term returns commonly referred to as 'lost decades,'" the institute said in a 2025 report. "There have been multiple lost decades throughout market history, with most of them occurring after periods of extreme market concentration and relative valuations."
Smead is positioning his portfolio away from the AI trade, betting on energy stocks, homebuilders, and regional banks. SMVLX is up 18.6% so far in 2026.
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