Mag 7 Struggles, Volatile Oil Prices | March 2026 Market Update

Full transcript:

Hello and welcome to the March Monthly update for 2026. My name is Steve Latham. Welcome. I am the chief investment officer for Bernicke Wealth Management. This month we’re going to be covering two topics. The first is focusing on the Magnificent Seven stocks. There was a lot of conversations held around them going through 2024 well into 2025. They are still very much a topic of conversation going into 2026, but for different reasons.

We’re going to cover those reasons here in a little bit. We’re also going to touch on the recent volatility in energy markets as a result of the broadening war in Iran, and how that may or may not impact the stock markets.

The Magnificent Seven: Why the Narrative Is Shifting

So with that, we’ll take a look at The Magnificent Seven. Now, as a reminder, these are seven of the largest stocks in the world.

They include names like Microsoft, Tesla, Google, also Alphabet and Nvidia, of course Apple, Amazon and Meta. Now these stocks are some of the largest. As I said before, but also some of the stocks that have grown the most over the last, really 2 or 3 years, but going all the way back to the dot-com bubble in 2001. Now, the key thing to look at here is when we’re seeing these stocks grow, there’s often an underlying reason for that growth.

And what we want to show you is part of the reason why that growth has started to falter and started to impact the overall stock market, because there’s such a large concentration of weight in these names at the top of the S&P 500, it has an outsize impact on the overall performance of that index. And so the first chart that we’re showing you here covers that performance going back to just after Covid at the beginning of 2021.

And we can see in the Green Line that is just the improvement or the price performance of those seven stocks up through just a couple of weeks ago. And we can see very clearly that that Green Line has significantly outpaced the overall S&P 500, which is denoted here in the gray line. The remaining 493 stocks have, of course, languished in that performance.

We haven’t seen them really catch up for quite a while now. And that again can also be traced back about 20 years. But really what we’re focusing on here is this dip since the end of 2025 and going into 2026, those stocks have not performed as well. Part of this is due to artificial intelligence. That has, of course, been the overwhelming narrative that we’ve been looking at for the last 18 to 24 months.

And that has driven a large proportion of these seven stocks’ outperformance. But that narrative is starting to break down a little bit. It doesn’t mean that artificial intelligence is going anywhere. It just means the market is starting to be a little more discerning about who is going to be the ultimate beneficiaries of the growth in that sector.

And the one way that you can look at that is through the earnings growth of those companies.

Earnings Growth: Magnificent Seven vs. the Other 493 Stocks

So this next chart that we’re going to show you is how much the company’s earnings have grown year over year. And that ultimately results in how you’re going to value those companies. And that valuation comes through in the stock performance. And so going all the way back to 2021, we see that the Magnificent Seven stocks had earnings growth of 60%, which is significant year over year.

There are very few companies, especially large and mega-cap companies that can say that they’ve grown their earnings by 60% in any given year. Generally, that’s confined to the smaller caps and the micro caps. The smaller stocks in the stock market. And when you look at that, compared to the other 493 stocks, of course 46% is very good. And that was coming off the heels of Covid.

But what we can see in the years thereafter is we had this stumble in 2022 where most of the market was down. You really couldn’t find a spot to hide in that year, but the rebound was significant in 2023 and 2024, where you had the Magnificent Seven’s earnings growth of 31% in 2023 and the other 493 stocks had negative growth.

That’s really where the catalysts and the ball started rolling for this outperformance of those seven stocks. That continued into 2024, albeit the 493 stocks also grew, but just by a very slim margin. And now what we’re seeing in 2025 and 2026 is that earnings growth for those seven stocks has significantly declined almost by 50%. Now, 22% is nothing to sniff at when you’re looking at a growth stock.

Anything in the 20s and certainly the 30s is going to be very strong. But relative to 31% and 40% in the prior year, 22% is certainly a decline. And not only that, you’re having the other 493 stocks grow more than what they did in prior years. So what this shows you is that there’s a little bit of a rotation starting to occur around those 493 stocks where you say, okay, we used to value those Magnificent Seven stocks at a pretty lofty rate because of that significant earnings growth.

But now that that earnings growth has contracted, there’s not a reason to have that really lofty valuation on those names. And you start to go look for cheaper valuations elsewhere. And starting in 2026 at least, the forecast suggests that that earnings growth is only modestly growing for the Magnificent Seven stocks. But also you’re seeing stability in the other 493 stocks.

What This Means for the S&P 500 in 2026

And to that point, starting in 2026, we’ve seen the overall performance of those seven stocks really stumble. The overall S&P 500, as denoted in the orange line right here, is down a modest 1.4%. But every single Magnificent Seven stock is down more than that so far to start the year. Now, the reason why the S&P 500 is only down 1.4% is because the other 493 stocks have been bolstering the performance of that index.

When you have these large names carry a significant weight in that index. It’s going to skew the overall performance of the index, because them being dragged down is going to drag down the S&P even more than, say, a smaller name in the other 493 stocks. So even though the S&P is really only flat on the year, we are seeing outperformance in the more value oriented spaces of the market.

And the reason why we’re highlighting this today is because we’ve seen so much of that outperformance being driven by those seven large companies, that it’s about time to start focusing on the other 493 stocks and going forward throughout the year, we believe that this is going to be a theme for 2026, where it’s not just going to be anything touching artificial intelligence is going to be a winner. It’s going to be a lot more picky and choosy as far as what stocks will do well versus their elevated expectations compared to other companies that may not have done as well, but have very attractive valuations. So it’ll be a theme that we’ll continue to watch for the balance of 2026 and going forward.

Energy Markets and the Conflict in Iran

Now pivoting a little bit to the energy markets, of course, at the end of February we saw a coalition of strikes against Iran. Iran, of course, being in the Middle East has a very heightened sensitivity to energy prices. Politics aside, this is something that energy market watchers are always going to be very sensitive to. And everything that we look at from a markets perspective is basically interpreting geopolitics in how can we determine how that’s going to impact the overall corporate profitability of not only the United States, but the other companies throughout the rest of the world?

And one of the areas that’s very easy to start to peel apart as far as how that’s going to impact those markets is the energy market. Of course, we have consistent pricing on crude oil. And whenever we’re looking at oil reserves, we want to see how those political outcomes are starting to impact the overall energy markets. And this chart that we have here in front of us shows us the price of crude oil, which is denoted in the black line compared to the energy sector of the S&P 500.

Now the energy sector is represented by companies like ConocoPhillips and Chevron and Exxon. Big integrated oil market players, along with other energy companies within the energy stack. And the thing that we want to show you here is that just because energy markets are starting to see the shock of supply being pulled off the market because of the disruption in the Middle East, the overall stock market. So the companies that carry the oil are actually not as impacted as what one might think. And so beginning with just a few days before the strikes on February 26th, we can see that the correlation between the stocks in the energy sector and the oil price itself was very tightly aligned. We saw a modest appreciation for a barrel of oil.

And that translated to the stock price of the companies that carry and produce and distribute that oil. But as soon as you see a market shock to energy reserves or the production capabilities of oil producing states, that’s going to have an impact to the price of oil, which we’ve seen. And in fact, oil as priced in barrels was over $120 overnight.

We’re recording this on Monday, March 9th. On March 8th, overnight, the markets were pricing in $120-$125 a barrel. Since then, even just as of the recording this afternoon, oil has retreated back to below $100 a barrel. But the stock market itself and the stocks associated with energy production really didn’t move a lot at all, certainly not at the velocity of the energy market.

Key Takeaway: Commodity Price Spikes Don’t Always Move Stocks

And the key takeaway here is that when we’re looking at the price of commodities, whether that’s oil, whether that’s copper, whether that’s any other industrial input, that doesn’t always translate to the price of the companies that are producing or distributing that commodity. And the reason for that is the market’s a forward looking vehicle. And right now the interpretation of these elevated oil prices is this seems to be a temporary shock, not one that’s going to cause oil to be static at $100 a barrel for months and months in the future.

The perception or the anticipation of the market currently is that even though oil is getting a shock today to the upside, there will be an evolution of what’s going on in the Middle East that would cause the price of oil to retreat back below $100 a barrel. Prior to the initiation of the operations in the Middle East, we had oil pricing around $65-$70 a barrel.

And so if energy prices come back to that level, that really doesn’t have as much of an impact to the price or the valuation of the stocks associated with that commodity, as one might think. Now, if we do see a shock that results in a permanent inventory disruption, or at least one that seems less than temporary, that’s where you’ll start to see the stock market price in more permanent earnings flow as a result of the higher price of these commodities.

But for right now, because it’s being viewed as a more transitory event, we’re not seeing that parlayed into the overall stock market. And that could be even seen across the stock market as a whole. Yes, we’ve seen more volatility in our stock market. We’ve seen the stock market as represented by the S&P 500 open the day down over 2% at some times, only to see it rally back up to only down half a percent or even positive on the day.

And if we were to see a more sustained impact to what’s going on in the Middle East, that could have a more metastasized issue in that space, whether it’s still in the Middle East or across the globe. That’s where you might see more downside volatility in not only the stock market, but across the commodity space as well.

So these are things that we always want to point out, because the headlines look a lot scarier than what the actual physical reality is for the stock market. Of course, this is a very fluid situation. So something that we’re going to be looking at day to day seeing if there’s any new announcement or strategy shifts from the key players within that space.

But going forward, we’ll of course keep an eye on it, make any changes that are necessary, and continue to keep you updated on what is most important, not only for your portfolios, but for the plans that we’re crafting for you. If there’s any questions or any other concerns around what’s happening in the market or anything else associated with our world, please don’t hesitate to reach out.

We’re always happy to answer your questions for you. Thank you very much.