Luke Kawa on the Mag 7, Apple's Defensive Role and AI Trade

Luke Kawa, Markets Editor at Sherwood News, says the stock market is at a crossroads with no clear leader, as the Magnificent 7 hold near record highs while most of its members and equal-weight stocks lag. His takeaway is to avoid slow-growth stocks, respect price action and wait for the market to show its hand.

I sat down with Kawa on Full Signal to walk through the charts that explain where stocks stand right now. He writes the Entry Point newsletter for Sherwood News, and his read is that investors are still waiting for the next leg to reveal itself.

Kawa said the S&P 100 recently made a fresh record high even though the S&P 500 did not, which he believes is the first divergence like that since October 2025. In a market searching for leadership after a momentum rout, he called that a constructive sign.

He also pointed out that Microsoft has contributed the most to the S&P 500 since the early June record high, even though the stock has done "pretty much nothing" over that stretch.

The group holds up because its members rarely fall together. Kawa said low correlations among the Magnificent 7, plus violent swings between software and semiconductors, have kept index drawdowns shallow this year.

Kawa described Apple as the place investors go when they do not like how much the hyperscalers are spending on AI. "Apple does kind of yeoman's work in terms of protecting the indexes," he said.

He argued that Apple still grows decently, which lets it carry an above-market multiple while trading like a defensive stock. Markets "will find a way to reward what is rare," he said, and a big company that is not spending heavily is rare right now.

Kawa showed that Nvidia and Broadcom have been rewarded less than their forward earnings revisions would suggest this year, while Dell and Marvell have outperformed theirs.

To him, that points to rising risk appetite as investors reach for smaller names that can double sales. "Once you're the one, it's harder to be than the next one," he said.

The S&P 500 equal weight index closed below its 50-day moving average for the first time since April, according to Kawa. That cuts against the broadening narrative that was popular earlier in the year.

He also flagged rising Treasury yields, oil and food prices, alongside a Citi global economic surprise index that he said is beating expectations by the most since April 2022. Kawa described the market as being in a "digestion period" and said those pressures need to ease, or stocks probably need to pull back.

Kawa said he is staying away from expensive companies with slow top-line growth, since corporate revenue is growing quickly. He thinks investors will not reward slow growth in that environment.

Instead, he said he looks to buy tech stocks after they get bombed out and relies on price action over fundamentals. "I know when I'm wrong and I'm not married to a fundamental thesis," Kawa said.

He has not been adding aggressively. Kawa expects the next couple of weeks, through the midterms, to tell investors much more about what the market wants to do.

Kawa said the number of S&P 500 stocks trading at price-to-earnings ratios of 40 or higher is near the 2022 or 2023 lows, even as the index sits within a few percent of record highs. That tells him the tails are extremely fat for AI, with room for both earnings growth and multiple contraction.

If there is a bubble, he said, it is in expected earnings. "The bubble is clearly not in valuations," Kawa said.

Tune in to the full conversation with Luke Kawa on YouTube, Spotify and Apple Podcasts.

For more on the Magnificent 7, read The Magnificent 7 are carrying the market like it's 2023 again, and subscribe to the free Opening Bell Daily newsletter for a daily briefing on stocks, macro and Wall Street.

This article is for informational purposes only and is not investment advice. The views expressed are those of the guest.