Mag7’s Achilles’Heel:
Rate Vol & Economic Growth Still Matter
1. Small Cap rotation is hostageto inflation
2. Rate Volatility - the BlindSpot in Equity Risk
3. Rising Rate Vol - the AchillesHeel of IBB
AI leadership has masked macro risks.
The Mag7 thrives on strong growth + ultra-low rate vol — both now at multi-year exposure extremes vs SPY. The Mag7 is not recession / stagflation proof.
Since July, macro momentum for US equities has stalled — AI excitement & earnings upgrades in the top 10 names (now ~40% of S&P 500 MV) have been doing the heavy lifting.
See the chart below.
Quant Insight’s MFERM risk model is -1.4σ below its 3-month average — back in macro complacency territory.
See the chart below.
But Mag7’s outperformance hinges on a Goldilocks backdrop:
- Strong growth
- Ultra-low rate vol (10yr yields just saw their lowest realised vol in 30 years)
Both exposures are now at multi-year extremes vs SPY.
See the chart below.
