Investing.com — Yardeni Research told investors in a note Thursday that a traditional year-end Santa Claus rally may be harder to sustain as investors rotate away from the Magnificent Seven toward the broader market.
The firm stated that it is declaring “Mission Accomplished” on its 7,000 year-end target for the S&P 500 after the index hit a record 6,901 on Dec. 11, adding that level “might be the high for this year,” according to Yardeni Research.
While Yardeni said it is “not ruling out a Santa Claus rally over the remainder of the year,” it cautioned that such a move is “unlikely to happen if the S&P 500 continues to rotate away from the Magnificent-7 toward the Impressive-493, as we expect.”
The firm also expects that rotation to continue into 2026.
Yardeni argued the Magnificent Seven may be entering a correction similar to the DeepSeek episode earlier this year, as investors grow concerned that heavy AI spending is “depleting the Mag-7s’ cash flows and slowing profits growth.”
Before AI, the group generated strong cash flow due to relatively low labor and capital spending, but that dynamic has changed as competition intensifies, Yardeni Research believes.
The firm noted that the Magnificent Seven’s market capitalization has doubled to $20 trillion over the past two years and now represents 31.7% of the S&P 500.
By contrast, the „Impressive 493“ trade at much lower valuations, with forward P/S of 2.5 versus 7.8 for the Magnificent Seven, according to Yardeni Research.
Looking ahead, Yardeni Research feels competition could slow Magnificent Seven earnings growth in 2026, while AI adoption boosts productivity and profits across the broader market, consistent with its “Roaring 2020s” scenario.