Yardeni Research is now advising investors to reduce their exposure to the ‘magnificent seven’ mega-cap technology stocks relative to the rest of the S&P 500. The firm anticipates a change in earnings growth dynamics. According to Wall Street veteran Ed Yardeni, increased competition will likely put pressure on the profit margins of these tech giants, while the broader S&P 500 will benefit from enhanced productivity and profit margins driven by technological advancements. Effectively, Yardeni suggests, ‘every company is evolving into a technology company.’
The strategist indicated that maintaining an overweight position in the information technology and communication services sectors within an S&P 500 portfolio is no longer justified. Yardeni Research had maintained this stance since 2010. The firm’s recent research note released on Sunday recommends adjusting these sectors to market weight. This shift involves increasing allocations to overweight positions in the financial and industrial sectors, as well as overweighting healthcare.
The ‘magnificent seven’ stocks, including companies like Nvidia, Meta, and Alphabet, have surged by over 600 per cent since the end of 2019, significantly outpacing the S&P 500’s 113 per cent gain. This growth has been fuelled by trends such as the COVID-19 pandemic-driven adoption of big tech and the recent surge in artificial intelligence. Yardeni Research is an investment strategy firm that provides research and analysis to institutional investors. The company offers insights on economic trends, market developments, and investment opportunities.
Furthermore, Yardeni sees limited justification for continuing to overweight the United States in the MSCI all-country world portfolio. This recommendation comes as global peers have outperformed the US market this year, driven by factors such as cheaper valuations, a weaker US dollar, and the resilience of worldwide corporate earnings.
