'Stocks In Monopolistic Bull Market': Wall Street Analyst Contemplates A Bright Future For Next Phase

This year’s bull market in stocks is a reflection of a bull market in monopolies and oligopolies, according to Bank of America’s Chief Investment Strategist Michael Hartnett.

While the S&P 500 boasts a commendable 14% year-to-date (YTD) increase, a closer look reveals the real action lies elsewhere.

In the most recent edition of his “The Flow Show” report, the analyst illustrated how the dominant force in stock market returns for 2023 has been the “Magnificent 7,” a group of technology giants that includes Apple Inc. AAPL, Microsoft Corp. MSFT, Alphabet Inc. GOOG GOOGL, Amazon.com, Inc. AMZN, Meta Platforms Inc. META, NVIDIA Corp. NVDA and Tesla, Inc. TSLA.

“Only thing outperforming Nasdaq YTD are Japanese banks; irony is Japanese banks are discounting higher rates, and U.S. tech betting on lower rates,” the analyst highlighted.

This tale extends beyond the tech titans. Companies such as Eli Lilly and Co LLY, Blackstone Inc. BX, Costco Wholesale Corporation COST, and Walmart Inc WMT, among others, are contributing significantly to this new narrative.

The significant contrast in performance becomes glaringly evident when comparing the cap-weighted indices with the equally weighted indices.

While the SPDR S&P 500 ETF Trust SPY has shown a YTD gain of 13%, and the Invesco QQQ Trust QQQ a staggering 35% increase, the Invesco S&P 500 Equal Weight ETF RSP, has struggled to maintain positive territory, posting only marginal gains.

Read Also: ‘Magnificent Seven’ Dominate S&P 500, But Haunting Echoes Of Dot-Com Bubble Resurface

Good News For The Next Bull Market Phase

 “Next bull market will begin with lots of cheap stocks,” Hartnett wrote.

The analyst showed how the price-to-earnings ratio of Magnificent 7 is currently at 31x, well above the 16x for the “S&P493” and 13x for international equities (ACWI ex-USA).

When using the P/E ratio to judge if a company is cheap or expensive, Viatris Inc. VTRS at 3.4x and United Airlines Holdings UAL at 4.0x are currently among the most attractively priced companies within the S&P 500 index.

The P/E ratio serves as a simple and readily available tool for comparing company valuations, making it possible to identify potential instances of undervaluation or overvaluation among stocks.

It should be considered alongside other financial metrics, such as earnings growth, debt levels and industry-specific factors to form a comprehensive view of a company’s financial health and valuation.

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