Citi: Rebuild the framework for positioning the US stock market index, using “clusters” instead of “Mag 7” to capture the AI growth narrative

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Golden Finance reported that on July 21, Citigroup released a report saying the “Mag 7” concept has failed and advocates a “cluster” analysis framework. Citigroup believes that “Mag 7” (the seven largest US tech giants) is no longer an effective construct for assessing large-cap stock growth dynamics. With the ongoing buildout of AI infrastructure, more stocks—including Broadcom (AVGO), Micron (MU), and AMD—have become key drivers of index returns and earnings growth. Citigroup proposes a framework that divides the S&P 500 into three major clusters: “Growth,” “Cyclicals,” and “Defensives,” to capture the impact of the AI wave more comprehensively.
The Growth cluster dominates S&P 500 performance and earnings. The Growth cluster currently accounts for 55% of the market value of the S&P 500 and contributes nearly 48% of profits. Analysts expect the cluster’s earnings per share (EPS) in 2026 to grow 42%, making it the main force driving the S&P 500’s overall 24% EPS growth. Although there was a pullback in the first quarter, the Growth cluster has remained in the lead in performance year-to-date (YTD).
Valuations are supported by strong earnings revisions and are not expensive versus history. Although the Growth cluster’s absolute valuation is higher than those of the Cyclicals and Defensives clusters, its valuation has not been excessively stretched relative to its own historical levels over the past 30 years. Its forward P/E (NTM P/E) is at the 66th historical percentile, and it benefits from continued “beat-and-raise” earnings revision dynamics. Consensus expectations show that over the past year, the Growth cluster’s 2026 EPS estimates were raised by 30%.
Index volatility will likely remain elevated, and traditional valuation comparisons should be approached with caution. The increase in the Growth cluster’s weight in the index (from less than 20% 30 years ago to the current 54%) has changed the market structure. This means the S&P 500 index no longer directly reflects the broader US economy as people assume. Because growth stocks typically have higher beta values, the index’s realized volatility is expected to stay higher than historical levels. In addition, long-term historical index valuation comparisons have become less correlated due to structural changes.
AVGO2.13%
MU11.93%
AMD8.18%
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