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The unique buying opportunity in the stock market is approaching, the RBA said.
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The investment firm highlighted big tech’s expectations for anemic profits over the next year.
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The bursting of the tech bubble means other segments of the market could see gains as leadership balances out.
Bearish signals are flashing for the market’s hottest group of stocks, and that’s a sign that a can’t-miss investment opportunity is on the horizon, according to Richard Bernstein Advisors.
The investment company has been saying for months that a a once in a generation opportunity is coming, and it might finally be within reach, said Dan Suzuki, RBA’s deputy CIO.
The thesis, which the company first proposed at the end of last yearrests on extreme market-wide leadership from a handful of stocks, with bigger gains for the other 493 names in the S&P 500 after a dominant period for the so-called Magnificent Seven.
While technology stocks have absorbed a considerable share of the market’s gains over the past 15 years, profits at large technology companies are expected to slow over the next quarter, Suzuki said.
Of the Magnificent Seven – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta Platforms – only three of them are expected to see profit growth above 25% in 2024, the RBA said in a recent statement. note.
This differs from areas like small capsindustrial, energy and emerging market stocks, whose profits are expected to accelerate in the coming year.
At the same time, valuations and investor concentration in ultra-large-cap technology companies appear extreme, even more so than seen in previous stock market bubbles, according to Suzuki. The top 10 stocks in the S&P 500 now account for more than 30% of the index’s total market capitalization, the largest share in more than 40 years:
At this level of exuberance, these companies risk underperforming, which would cause investors to look to other segments of the market, Suzuki said. He pointed to the bursting of the dotcom bubble in the early 2000s, followed by a decade of anemic returns.
“I think eventually you’re going to see a bear market,” Suzuki said of large-cap tech stocks. interview with Bloomberg on Friday. « I’ve gone so far as to say I think it’s a bubble, and I don’t use that term lightly. So ultimately it suggests there’s going to be some accountability . »
But it’s actually great news for virtually every other area of the market, according to the RBA, because investors will eventually turn to other stocks and swing the pendulum the other way.
While the Nasdaq collapsed during the dot-com crash, underappreciated sectors like energy and emerging markets actually saw « monstrous » returns in the following years, RBA founder Richard Bernstein, to Business Insider in December.
The company expects the same phenomenon to occur as the extreme valuations of tech stocks appear poised to retreat. Bernstein said he believed that Magnificent Seven shares could end up losing 20% to 25% of their value over the next decade, while small-cap stocks in the Russell 2000 could gain about the same amount.
“I think it’s one of those once-in-a-generation opportunities,” Suzuki said.
Other Wall Street experts have warned of a major correction ahead for technology stocks, which have rebounded to dizzying heights as investors jump into the hype for generative AI. Investing veteran Bill Smead called the Magnificent Seven’s stock boom « speculative orgyThis could soon end, leading to what he describes as a « stock market crash. »
Read the original article on Business Insider
