Top Strategist Shrugs Off 'Magnificent 7' Concentration Risks: 'Stock Market Has Held Up Just Fine...When Mega-Cap Stocks Started To Wane'

Investors should not be overly concerned about the significant concentration of mega-cap tech stocks, according to a top strategist.

What Happened: Brian Belski, the chief investment strategist at BMO Capital Markets, believes that the current market risk due to the dominance of mega-cap tech stocks is being overestimated. He stated in a note on Tuesday that the risk is not as severe as some might think, reported Business Insider.

The “Magnificent 7” mega-cap tech stocks, including Apple Inc AAPL, Microsoft Corp MSFT, Alphabet Inc GOOGL GOOG, Amazon.com Inc AMZN, Meta Platforms Inc META, NVIDIA Corp NVDA, and Tesla Inc TSLA, currently account for 29% of the S&P 500.

Although a potential decline in demand for these stocks poses a risk, Belski is confident that the broader market can still yield positive returns even if the mega-cap tech stocks falter.

“Our work shows that the stock market has held up just fine in prior periods when the outperformance of mega-cap stocks started to wane,” Belski said.

“In fact, the only period where the index posted a loss occurred in 2001 (Tech Bubble), and as we mentioned quite frequently in recent reports, we do not consider that to be a comparable period despite some recent chatter to the contrary,” Belski said.

See Also: DEA Poised To Reschedule Cannabis This Week? Something’s Brewing In The White House, Says This Insider

He pointed out that the stock market has historically performed well when the mega-cap stocks’ outperformance has started to wane. He also noted that a 10% correction in the second year of a bull market is typical and should not deter investors.

From a valuation perspective, Belski believes that the other 490 stocks in the S&P 500 are trading just slightly above their long-term average price-to-earnings ratio. Their earnings also seem to have bottomed in 2023 and are now improving.

Why It Matters: Belski’s comments come amid a bullish market sentiment. On Wednesday, the S&P 500 surged to an intraday high of 4,995 points, driven by robust corporate earnings. The “Magnificent Seven” tech stocks, including Apple, Microsoft, and Alphabet, collectively exceeded a market capitalization of $13 trillion, underscoring their dominant market presence.

Earlier, Belski had predicted a strong performance for the stock market in 2024, even in the face of a potential recession. He set a 2024 year-end S&P 500 price target of 5,100, signaling a potential 12% upside from present levels, driven by factors such as declining inflation, a robust job market, and climbing corporate earnings.

Meanwhile, Fundstrat’s Head of Research, Tom Lee, has also been bullish on the stock market’s strength in 2024, despite concerns about corporate earnings and the timing of Fed rate hikes. The Fed’s recent meeting suggested no imminent rate cuts until inflation is under control, a sentiment echoed by Fed Chair Jerome Powell.

Read Next: New Growing Method Skips Weed Vegetative Stage, Slashing Electricity And HVAC Costs, Preserving Yield And Quality

Image Via Shutterstock


Engineered by Benzinga Neuro, Edited by Kaustubh Bagalkote


The GPT-4-based Benzinga Neuro content generation system exploits the extensive Benzinga Ecosystem, including native data, APIs, and more to create comprehensive and timely stories for you. Learn more.


Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorEquitiesNewsMarketsAnalyst RatingsAlphabetAmazonAppleBMO Capital MarketsBrian BelskiKaustubh Bagalkotemagnificent 7MetaMicrosoftS&P 500Tesla
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!