Can a Fed Rate Cut Boost the Magnificent Seven to New Heights?

With a rate cut now all but certain, the market’s bull run seems unstoppable.

But it may look a little different. 

Last week, Apple was slapped with two critical downgrades, suggesting that the Cupertino, California-based iPhone-maker is proving there may be a limit to just how high a megacap tech company can climb. But is the rest of the Magnificent Seven bumping up against a similar ceiling?

Defense Is the Worst Offense

Apple’s “Awe Dropping” event last Tuesday included the debut of its Air model of iPhones, an attempt to broaden the market for its marquee product and compete more aggressively with ascendant Samsung’s rival models. The anticipated foldable iPhone was a no-show, adding fuel to the criticism that Apple has been too slow to innovate across both hardware and, particularly, AI software. By the end of the week, awe gave way to meh. DA Davidson downgraded Apple’s stock from “buy” to “neutral,” while Phillip Securities downgraded it to “reduce” from “neutral.”

The gloomy reaction left Apple on the sidelines of another stellar week on the stock market; its share price fell roughly 2.2% over the course of last week, counter to a five-day streak of closing highs and a 1.5% gain for the tech-heavy Nasdaq and a 1.3% increase for the broader S&P 500, which closed at a record on Thursday. Among the Mag 7, only Amazon joined Apple in the losers’ club, with investors focused on its growing competition in the AI space, particularly from Oracle.

Last week’s big winner? Tesla, this year’s biggest Mag 7 loser, which will benefit from rate cuts more than the other six: 

• Tesla stock climbed nearly 12% last week, which means it has clawed back all its losses for the year after plummeting more than 40% through April (it’s tough being a global auto company amid a global trade war — especially when you’re on a friends-to-enemies arc with the US president).
• So what explains the rise? Auto companies tend to do well, naturally, in times of lower interest rates, given that most consumers still finance their car purchases. Stellantis also rose about 3.4% last week, while GM rose about 0.5% (Ford, down 0.6% last week, is stuck dealing with a nasty spate of recalls; it’s responsible for roughly 60% of all major US auto recalls this year, Barron’s recently found).

Print the Legend: Not everyone is feeling the Fed cut hike. In a note last week, JPMorgan’s Andrew Tyler wrote that the bank is maintaining its “lower conviction Tactical Bullish” market outlook. That’s a fancy — or at least very masculine — way of saying “yes, rate cuts could be good for the market, but they’re still happening for a reason.” Tyler flagged resurgent inflation, a weak labor market, and ongoing trade risks as headwinds moving forward, saying the rate cut could turn into a “Sell the News” event.