The Changing of the Guard

Like clockwork, it happens at the same time every day.

If you’ve ever seen the changing of the guard, you know exactly what I mean.

Like in Athens, Greece, where the Evzones – the Greek Presidential Guard – perform a formal military ceremony in front of the Tomb of the Unknown Soldier outside of the Greek Parliament.

Every hour on the hour, two new guards replace the existing guards in a precise, choreographed sequence. (You can watch it here.)

It’s a significant honor to serve as an Evzone. It’s an elite military unit. There are only about 100 soldiers chosen to serve in the unit at any time.

So it’s a proud moment when a young soldier joins their ranks.

It’s not unlike what happens when a company joins the S&P 500 Index. It’s supposed to be 500 of the world’s best companies. (Or 503 to be exact.) The elite-of-the-elite when it comes to the universe of the more than 4,000 public companies in the U.S.

Joining the S&P 500 is an honor. And it’s why there’s a lot of fanfare at those companies when they do.

Just like the Evzones, the S&P 500 is constantly changing. Old companies don’t make the cut anymore. New ones take their place.

Sometimes some companies in the unit show exceptional ability, dominating the landscape.

But as with all things, eventually, there’s a changing of the guard.

For several years, seven stocks ruled the roost. The so called Magnificent 7 (Mag 7) – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – are the kings of the S&P 500.

Together, they make up about 34% of the entire index. And are worth more combined than just about any other stock market – as measured by market cap – around the world except the U.S.

Buying the S&P 500 Index is basically making a bet that the Magnificent 7 continue their run. Many investors treat them as a be-all, end-all part of their portfolio.

It’s almost like the Nifty 50 stocks of the late 1960’s and early 1970’s. Dubbed “one-decision” stocks, they were a group of fashionable U.S. large-cap growth stocks investors couldn’t get enough of…until things changed.

The funny thing is something similar is already starting to happen in the S&P 500.

For years, just about the only companies making highs in the index were the Magnificent 7. If it wasn’t Tesla, it was Netflix. If not Netflix, it was Nvidia. Almost like a game of musical chairs to see which one would make a new high next.

But now many of the companies locked out of the game are crashing the party. For example, on February 12, we saw 111 different companies in the index hit new highs. And it’s not the only time this month that figure hit triple digits.

Meanwhile, the Mag 7 are struggling to gain any momentum so far this year.

All this means is there’s a changing of the guard happening in the market. What’s old is new again. And the companies like the Mag 7 that guarded the gateway look to be rotating out.

Remember, back in December in our prediction series, I said something similar. I said that although I believe stocks will finish 2026 higher, it won’t be because of stocks like Nvidia. It won’t be from the tech sector.

What we may see this time around is something similar to what happened in 2003.

After the internet bubble popped, there was an eventual shift in what investors poured money into. They shifted focus from the tech darlings of the day into more old-school, steady businesses.

We can even see that happening already by looking at which sectors are gaining and which ones are lagging:

Energy, consumer staples, materials…these are what we would consider more on the value spectrum instead of growth stocks like the Mag 7.

So in a sense, that prediction looks to be in its early stages. Only time will tell. But it’s a trend we’re betting on in Strategic Trader. One we’ve already profited on this year with our most recent trade in offshore oil drilling company Valaris.

Last month, I recommended the company’s warrants to Premium members. It handed us about a 300% gain in a matter of weeks. A far better outcome than the 53% return of the stock over the same period.

And it’s a trend we’re continuing to bet on with our most recent pick, warrants in a small royalty company doing something truly unique.

There’s always a bull market somewhere. And when you can recognize a changing of the guard, it could lead to solid profit opportunities in the years ahead.

Regards,

Editor, Strategic Trader