S&P 500 With & Without The Magnificent-7

We are declaring "Mission Accomplished" on our 7000-year-end target for the S&P 500. The index rose to a record high of 6901 on December 11. That's close enough for us and might be the high for this year. We aren't ruling out a Santa Claus rally over the remainder of the year. However, that is unlikely to happen if the S&P 500 continues to rotate away from the Magnificent-7 toward the Impressive-493, as we expect (chart). We also expect that this rotation will continue into 2026.

The Mag-7 may be undergoing a correction similar to the DeepSeek correction earlier this year. DeepSeek surprised the AI world on January 20, 2025, when it released its "R1" reasoning large language model (LLM), nearly matching the performance of top US closed models at a fraction of the cost. The Mag-7 rebounded after they reported robust Q1 and Q2 earnings and reiterated on their conference calls that they were committed to spending tens of billions of dollars on AI infrastructure.