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Diverging fortunes for the massive technology and growth names that have propelled the U.S. stock market higher are throwing a spotlight on their pricey valuations.

The so-called “Magnificent Seven” are collectively trading at an average of 33 times their expected earnings for the next 12 months, up from 26 at the end of 2022, according to LSEG Datastream.

That compares with a price-to-earnings ratio of about 21 for the benchmark S&P 500 index, which has risen over 7% this year.

Investors last year were happy to pay up for the megacaps, given the companies’ solid balance sheets and dominant positions atop their industries.

They have been more discriminating this year, punishing the shares of Tesla and Apple when their outlooks turned murky while fueling dizzying gains in Nvidia.

“When you get to those kinds of valuations you have no room for failure, no room for disappointment,” said Mike Mullaney, director of global markets research at Boston Partners.

Concerns about electric vehicle demand have sparked a near 35% drop in the shares of the former market darling Tesla this year, making it the S&P 500’s worst performer.

The stock traded at about 65 times forward earnings at the start of the year, and is down to about 50.

Another Magnificent Seven member, Apple, has ceded its perch as the biggest U.S. company by market value to Microsoft after its shares declined 10% year-to-date, amid pressure in its China business. The stock’s P/E has fallen from 29 to 25.

Meanwhile, chipmaker Nvidia, which trades at about 35 times earnings, has soared about 80% as it established a dominant position in artificial intelligence applications.

AI optimism has also helped drive a nearly 40% gain in Meta Platforms. The Facebook parent trades at 24 times earnings.

By contrast, the Magnificent Seven last year advanced about 50% for Apple to over 230% for Nvidia. Because of the stocks’ heavy weighting in the S&P 500, the group’s performance accounted for over 60% of the index’s appreciation last year.

The S&P 500 rose 24% in 2023.

Markets are awaiting the coming week’s Federal Reserve policy meeting, which concludes on Wednesday.

A strong economy and sticky inflation have lowered investor expectations for how much the central bank will cut rates this year, leading to a rise in Treasury yields that could pressure stocks if it continues.

Investors gauging whether Nvidia can parlay its massive lead in AI computing into long-term dominance will be watching the company’s developer conference, set to kick off on Monday.

Though AI optimism has helped lift a swath of the Magnificent Seven, many investors are grappling with how to weigh the technology’s potential in their valuation models.

“We are in a unique cycle here with AI, so we are struggling to make sure we optimize the opportunity of this massive transitional shift in technology,” said Ken Laudan, portfolio manager for the Buffalo Large Cap Fund, which holds the seven stocks but is underweight them on a combined basis.

While robust earnings have supported the Magnificent Seven’s valuations, the group’s growth trajectory is due to moderate later this year or early next, said Jeffrey Buchbinder, chief equity strategist for LPL Financial.

“At that point, markets may not want to pay double the P/E for this group,” said Buchbinder, pointing the Magnificent Seven’s trailing P/E of 41 versus 23 for the S&P 500.

Many investors remain sanguine regarding the Magnificent Seven’s valuations.

Five of the seven are trading below their five-year median P/E ratios, while the group is trading more cheaply versus the market than a few years ago, JPMorgan strategists said this week.

Nvidia’s P/E has actually fallen from nearly 60 a year ago as analysts increase their profit forecasts for the chipmaker.

“These are companies that are cranking out enormous amounts of cash, very strong balance sheets, visible sources of revenue growth,” said Katie Nixon, chief investment officer for Northern Trust Wealth Management.

But Apple and Tesla’s shares have recently fallen below their 200-day moving averages. Though the rest of the group are above that mark, more of the Magnificent Seven dropping below their trend lines could be a “warning sign” for the market, Citigroup analysts said.

If the Magnificent Seven “start to go down absolutely you could reverse a lot of the recent almost euphoric sentiment,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.

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Cassidy: Nine Knights had surgeries during season

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Cassidy: Nine Knights had surgeries during season

Seeing their bid for consecutive Stanley Cups end in the first round wasn’t the only pain the Vegas Golden Knights felt this postseason.

Nine Vegas players had surgeries this season, coach Bruce Cassidy shared Sunday after his team’s 2-1 loss to the Dallas Stars in Game 7 of the Western Conference quarterfinals.

“Nine guys. Your roster is only 23, so nine players,” Cassidy said. “Two of them internal surgeries. You never know how those are going to play out. Some other ones were a little more defined, but I give our guys a lot of credit.”

Even though the Golden Knights had 20 players returning from their 2022-23 title team, they still faced questions heading into the playoffs. Most of those queries were about what a fully healthy Golden Knights team would look like once the postseason started. That also included questions about how trade deadline acquisitions — such as forwards Tomas Hertl and Anthony Mantha, and defenseman Noah Hanifin — would fit on an established team.

The Golden Knights opened the series by winning both games at the American Airlines Center in Dallas to take a 2-0 series lead before the Stars won three straight. Vegas rallied with a 2-0 win in Game 6 at T-Mobile Arena in Las Vegas to force a Game 7.

“Up 2-0, it would’ve been nice to find a way to win two of those three games,” Golden Knights defenseman Alex Pietrangelo said. “They made some adjustments that I don’t think we adjusted well enough right way. That’s on us as players to find a way when we’re up 2-0 to get the job done.”

NHL Injury Viz, a site that tracks games lost to injuries, has data revealing that the Golden Knights were among the teams to lose the most player games to injury during the 2023-24 season.

In total, the Golden Knights had 10 players who missed more than 10 games because of various injuries. Some players, such as defenseman Shea Theodore (35 games) and left winger Mark Stone (26), had extended absences. Others, such as goaltender Adin Hill, missed more than 10 games because of separate injuries. Hill missed seven games because of a lower-body injury and another 15 games because of an undisclosed injury, according to NHL Injury Viz’s data.

Cassidy said many of those injuries happened when the Golden Knights were trying to find cohesion with their forward lines and defense pairings.

Hertl was recovering from a knee procedure when he was acquired via trade from the San Jose Sharks on March 8 and played just six games with his new club before the playoffs. In total, Hertl missed 28 regular-season games between the Golden Knights and Sharks.

“Some of those surgeries are obviously correcting a problem, but it takes us a while to get back up to speed,” Cassidy said. “That would be the unfortunate part. They came and did get healthy enough for the playoffs. That was the positive, and now you are trying to get a team up to speed in a hurry.

“I didn’t do a good enough job of that, but that’s a lot of surgeries in one year for guys to overcome, and it defines your game.”

Stone, who underwent multiple back surgeries last season, was recovering from a lacerated spleen this season before returning ahead of Game 1. The Golden Knights captain said he was proud of how the team performed in the face of what was a challenging set of circumstances.

“We had a hard time staying healthy,” Stone said. “Still found a way to get into the playoffs, and we did give ourselves a chance to win the series with a one-goal loss in Game 7 against the top team in the conference. It’s disappointing. That’s really the only way to say it. It’s disappointing.”

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Rishi Sunak admits Tories may not win general election and claims UK heading for hung parliament

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Rishi Sunak admits Tories may not win general election and claims UK heading for hung parliament

Rishi Sunak has admitted the Tories may not win the general election after grim defeats in the local polls.

The prime minister suggested the UK was on course for a hung parliament and claimed voters would not want to see Labour leader Sir Keir Starmer “propped up in Downing Street” by the SNP or smaller parties.

In an interview with The Times, Mr Sunak pointed to Sky News analysis of the local election results by election expert Professor Michael Thrasher which suggested Labour would be the largest party in a hung parliament.

Politics live: PM told to ‘wake up and smell the coffee’ after elections

“These results suggest we are heading for a hung parliament with Labour as the largest party,” Mr Sunak told the paper.

“Keir Starmer propped up in Downing Street by the SNP, Liberal Democrats and the Greens would be a disaster for Britain.

“The country doesn’t need more political horse-trading, but action. We are the only party that has a plan to deliver on the priorities of the people.”

Meanwhile, Tory rebels have warned the prime minister to change his political course after the weekend’s local election results.

Read more:
The local election winners and losers
Charts tell story of Conservative collapse

Analysis: Labour’s future success is less clear-cut

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PM on ‘disappointing’ election results

Sunak urged to take party towards right

Former home secretary Suella Braverman urged him to mould the party towards the right in order to win back voters.

But she told the BBC a change of leadership was not a “feasible prospect,” adding: “There is no superman or superwoman out there who can do it.”

Ms Braverman urged the prime minister to adopt several measures to win back voters, including further tax cuts and a cap on legal migration.

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Rishi Sunak ‘up for the fight’ in general election

Tories ‘up for the fight,’ minister insists

But Transport Secretary Mark Harper insisted Mr Sunak and the Tories are “up for the fight” of a general election despite their terrible results in the local contests.

Talking to Sky News’ Sunday Morning With Trevor Phillips, the minister said: “I think the key thing that people need to do now is get behind the prime minister, focus on the things the government is focused on delivering – the British people’s priorities around the economy, dealing with migration – and get out there and take that fight to the country ahead of the general election.”

Labour won 1,158 seats in the 107 councils in England that held elections on 2 May, an increase of more than 232.

The Liberal Democrats won 552 seats, up nearly 100, while the Tories came in third place on 515 seats, down nearly 400.

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UK

Rishi Sunak rides out leadership challenge – but faces ‘exhausted and broken’ Tory party when parliament returns

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Rishi Sunak rides out leadership challenge - but faces 'exhausted and broken' Tory party when parliament returns

Rishi Sunak’s internal critics have abandoned their attempt to unseat him because they have run out of time and do not believe Penny Mordaunt would do what is necessary to save the party.

The Politics at Jack and Sam’s podcast this week discusses how the PM is unlikely to face a challenge but will be confronted by an exhausted, sceptical and in parts broken Tory party when Parliament returns on Tuesday.

👉 Listen above then tap here to follow Politics at Jack at Sam’s wherever you get your podcasts 👈

He faces legislative challenges in the coming weeks, with revolts on the criminal justice bill and sentencing bill, that could be aggravated by the party’s poor performance.

However, efforts by plotters – a loose band co-ordinating to bring down Sunak dominated by ex advisors rather than Tory MPs – have been abandoned.

Read more:
West Midlands loss fires starting gun on future of Tory party
Labour taking ‘Tory crown jewel’ feels like a momentum shift

They are understood to believe the local elections show the Tories still on course for annihilation but they have run out of time, and the window for a challenge was back in December or January.

More on Local Elections 2024

They had hoped a suitable candidate would emerge and the closest they came to believing someone was interested was with Penny Mordaunt, though she has denied plotting. In the end, rebels concluded she would not do what it takes. They also said the political cost of changing leader increased sharply in recent months.

Sunak is now hoping Britain coming out of recession this Friday will help turn his fortunes around.

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