Is the Mag 7 about to become Mag 8?

What is driving the recent stock market rally, and are the gains durable?

Market recap

• Markets seemed to shrug off the Iran war with an eye on U.S.-China trade relations.
• While the Middle East ceasefire remains fragile and oil prices remain elevated, attention turned to Beijing.
• The long-awaited meeting of the minds (or Presidents Xi and Trump) seemed to go smoothly despite warnings about staying away from topics like Taiwan.

Equities

U.S. stock markets continued to reach new highs last week as investors respond to one of the best earnings seasons in recent memory. While markets did come back to earth somewhat on Friday and significant uncertainty remains with respect to the Iran conflict, we believe this rally is durable, because they’re driven by the fundamentals. Broadly speaking, U.S. companies have the best earnings and the most ambitious capital expenditure (CapEx) plans. In our view, markets are properly reflecting the strength of these leading U.S. firms, especially in the Technology space. As I’ve noted previously, Tech also benefits from being less reliant on oil as an input compared to some other sectors, and therefore less sensitive to higher prices and the ongoing Strait of Hormuz situation—another reason why they’ve earned a premium to the market. Companies outside of Tech reported strong profits as well, with 84% of all companies in the S&P 500 beating earnings estimates.¹ Consumers’ resilience is playing a role here; many investors were pricing in a less rosy consumer picture, including negative impacts from tariffs and the Iran conflict, but that did not materialize in company guidance. A delayed impact is to be expected—for instance, the economy is only now feeling the full effects of the U.S. Federal Reserve’s (Fed) interest rate cuts from last year. In the near term, the impact of higher oil prices is being offset by tax refunds. After a few months, it is likely that people will begin to feel the effects of inflation and higher oil prices. For now, however, we believe that markets can continue to move higher, with Tech leading the way but other sectors benefitting from a broadening of the rally.

Bottom line: In our view, markets can continue to rally as long as we don’t see any further spikes in oil prices—though much still depends on the timing of a resolution to the Iran conflict.

A.I. IPOs

A slew of artificial intelligence (A.I.) initial public offerings (IPOs) are on the horizon, including heavyweights like Anthropic, OpenAI, and SpaceX. But is there a chance these offerings could upend markets as investors pull assets from other investments to join the party? It’s a good question, as we expect FOMO (fear of missing out) to drive strong interest—many investors will feel that they missed out on previous Tech IPOs and won’t want to be left on the sidelines this time. Markets are already very familiar with the A.I. theme, and in addition to individual investors, we also expect strong interest from institutions, many of whom are already involved with these kinds of companies pre-IPO. People who have been sitting on cash may also be enticed to get in on these opportunities. That said, if investors are reallocating money to take part in these offerings, we expect it would mostly come out of their existing A.I. sleeve rather than other parts of their portfolio. There is also the risk that these IPOs may also reignite concern about exceptionally high valuations and whether companies A.I. CapEx spend is driving revenues. If the Magnificent 7 (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) were to suddenly become the Magnificent 8 or Magnificent 9, investors may feel that even greater skepticism of valuations is warranted.

Bottom line: We expect strong interest in upcoming A.I. IPOs, with money mostly moving over from other A.I. companies.

U.S.-China

Last Friday, the whirlwind U.S.-China summit came to a close, with U.S. President Trump and Chinese President Xi both saying that progress was made despite no new trade deals being announced.² The timing of the state visit was interesting, as the U.S. is likely seeking Beijing’s help in resolving the Iran situation and re-opening the Strait of Hormuz. While Trump has sought to project strength in his public statements, the midterm elections are only six months away and public opinion polls show the war to be unpopular.³ China is in the unique position of potentially being able to influence Iran given the two countries’ close relationship, and also motivated to reach a resolution given their reliance on Middle Eastern oil. But no favour comes for free—if China is to intervene in hopes of ending the conflict, it will expect something in return, and Trump’s political bind puts Beijing in an advantageous negotiating position. Everyone involved, including Iran, wants the strait open. It’s just a matter of bridging the gap between what Iran wants and what the Trump administration is willing to give up without losing face—and thus far, bilateral talks have not produced a solution. In our view, the U.S.-China summit is a positive step, because it indicates that the U.S. is actively engaged in resolving the situation. From a trade standpoint, it also means that better deals between the two countries could be coming. There is some risk that if Iran-related negotiations go poorly, then that could carry over into the trade sphere. But we don’t expect that to be the case. The other risk we’re monitoring involves the U.S. CEOs that accompanied on the trip, including Tesla and SpaceX’s Elon Musk and Nvidia’s Jensen Huang. The mixing of business and politics is always dicey. We’ve already seen the U.S. government take a stake in Intel. If they hold onto it for some time and/or acquire stakes in other firms, then we’d essentially be looking at longer-term government ownership of corporate America, which could complicate matters down the road.

Bottom line: The U.S.-China summit renews hope of a resolution to the Iran conflict—but if China does get involved, it will expect something in return.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled A tale of two markets: U.S. optimism meets Canadian caution .

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Originally Posted May 19, 2026 – Is the Mag 7 about to become Mag 8?