The Magnificent Seven stocks accounted for virtually all of 2023’s 24% stock market gain.

The Magnificent Seven stocks are Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).

And according to Wall Street analysts these stocks are set to do it again when they report fourth quarter earnings beginning this week (on Wednesday, January 24, with Tesla) and continuing into the following week.The Magnificent Seven are expected to deliver combined earnings growth of about 46%, according to data from Bloomberg. That’s down slightly from the third quarter’s 53% expansion, but it still dwarfs almost all of the main sectors in the S&P 500 Index.

It’s not surprising, therefore, that the long Magnificent Seven (and other tech stocks) is the most common trade in the current market. Nor that the options market is pricing in “virtually no risk” for mega-cap stocks, Brian Donlin, head of equity derivatives strategy at Stifel Nicolaus, told Bloomberg.

All of which makes the recent weakness in some of the Mgnificent Seven stocks a bit worrying. Apple and Tesla are most likely to deliver disappointing numbers.

Apple hasn’t exactly torn up the track in 2024 with the shares down 0.50% in 2024 as of the close on Friday, January 19, and off 2.73% in the last month. I think that performance is actually amazingly good given worries about yet another quarter of falling revenue for the last quarter of 2023, over a slump in iPhone sales in China, and what seems to be a big hole in the company’s new product schedule in the quarters until September. Analysts expect the company to report $2.09 a share for the last quarter of 2023 against earnings of $1.88 in the last quarter of 2022. That would be year over year earnings growth of just 11.2%. That’s not compelling for a stock trading with a market capitalization of close to $3 trillion.

I’m actually more worried about Tesla. The company is a victim of a slowdown in global sales of electric vehicles and a huge competitive challenge from China’s electric vehicle markers. China’s BYD (BYDDY) sold more electric vehicles than Tesla in the last month of 2023. Tesla shares are down 17.51% in the last month and 14.6% for 2024 to date. Wall Street analysts project the the company will report earnings of just 60 cents a share for the last quarter of 2023 versus earnings of $1.07 a share for the last quarter of 2022. Earnings are never the name of the game at Tesla, of course. But there’s a good chance that the company will report disappointing sales for the quarter. That will leave it up to Elon Musk to paint a glowing picture of future deliveries yet again. Will the market continue to buy that story?

All of this leaves me in a quandary about this market. On the one hand, I’d certainly like to see leadership broadening in a rallying market as a sign that the market rally can continue. Maybe technology shares in general will pick up the slack from the Magnificent Seven. Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing (TSM) are up 18.91% and 9.81% for 2024, respectively. And ASML Holding (ASML), up 29.20% for the last there months; Applied Materials (AMAT) up 25.17%, Intel (INTC) up 35.34%, NXP Semiconductor (NXPI) up 16.73%, Broadcom (AVGO) up 40.17%, and Qualcomm (QCOM) up 37.28% in the last three months have all begun 2024 with a lot of momentum.

Unfortunately, I don’t see another sector ready to take over the leadership role from technology in this market. Earnings in the utility sector are projected to grow by 48% year over year for the fourth quarter–but I can’t think of a market rally from anything like these levels that’s been led by utility stocks. The consumer discretionary sector is projected to show year-over-year earnings growth of 16%. There might be some strength there if we also get good guidance.

But I’d say this earnings season is “Show me” time for this rally.