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good morning! What a game. Congratulations to all Chiefs fans and Swifties. Speaking of Taylor, she wasn’t the only celebrity in attendance. Here are some other notable participants:
In today’s big article, we look at why the stock market’s dominance by the Magnificent 7 isn’t such a bad thing.
What’s on deck:
But first, don’t sweat it.
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big story
S&P 500 7
Recently, the stock market has become less like a “market.”
The seven Magnificent stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) currently account for about 29% of the S&P 500, according to Goldman Sachs data.
Such a top-heavy market creates unique events. The S&P 500 closed at a record high earlier this month, even though there were more than twice as many declining stocks as advancing stocks.
Some fear that we are headed for disaster because of the high degree of market concentration.
But for others, like Brian Belsky, chief investment strategist at BMO, the risks are overstated, writes Business Insider’s Matthew Fox. In fact, the market did well the following year, when the leading stocks in the S&P 500 outperformed the index, with an average return of 14.3%.
The index did fall after the tech bubble burst in 2000. But comparisons between the dot-com era and today’s market are misplaced, writes BI’s Aruni Soni.
In the late 1990s, many companies entered the public market more for promise and potential than for products or profits. This time, the market is being driven by highly profitable companies with much stronger fundamentals.
The question of where the money for Magnificant 7 will go remains to be seen.
Morningstar senior U.S. market strategist David Sekera told me he thinks it’s a good time for investors in these stocks to lock in some of their gains and reinvest in companies that have lagged in last year’s gains. Told.
The research firm’s 5-star rating system for stocks has recently become less bullish on the Magnificent 7 stocks, considering nearly all of them to be undervalued in early 2023.
Microsoft, Amazon, and Tesla have 3 stars, indicating fair market value, while Apple, Nvidia, and Meta have 2 stars, indicating overvaluation. Alphabet has a 4-star rating and is considered the only underrated company in this group.
Sekera said small-cap stocks, which some investors are speculating could be a big year, are a potential landing spot for money rotating out of the Magnificent 7. But some investors may want to keep their money in large-cap stocks.
If so, Sekera said blue-chip stocks such as Exxon Mobil, Pepsi and McDonald’s (all four-star) could be interested.
Still, transferring funds from Magnificent 7 to other stocks may not be smooth. Geopolitical risks, uncertainty surrounding the next rate cut, and the looming US presidential election pose additional unknown risks.
Catch up on Monday’s headlines
A quick summary of the weekend’s top news.
Three things in the market
1. BlackRock switched things up with a secret unit advising the government. The world’s largest asset manager has promoted two executives in charge of financial markets advisory. The division serves as BlackRock’s consulting arm and serves as an internal starting point for leaders.
2. The commercial real estate crisis may prompt Federal Reserve intervention. Economist Komal Srikumar said ongoing issues in the sector could force the Fed to cut rates by May. Srikumar cited the 2008 financial crisis as a lesson on why central banks should not wait too long.
3. Four top investors and economists don’t have a good feeling about the market. Jeremy Grantham, David Rosenberg, Jeffrey Gundlach and Gary Schilling have all expressed concern that the US remains in recession. From overvalued stock prices to aggressive government spending, here’s what they’re so concerned about.
Three things about technology
1. A secret and painful reset of Amazon’s big bet on healthcare. The tech giant paid $3.9 billion for One Medical as part of its expansion into healthcare. But with hundreds of millions of dollars in losses and questions about its strategic direction, Amazon embarked on a secret effort to get back on track.
2. Hollywood’s real competition is YouTube, not Netflix. Despite Netflix being praised for winning the streaming wars, YouTube still tops the list in terms of viewing time and advertising. They’re also winning in areas that matter to Gen Z.
3. Softbank’s Masayoshi Son is focusing all his efforts on AI. SoftBank realized $72 billion in profits from investing in Alibaba over 20 years. But after essentially withdrawing from that position altogether, the company has turned its attention to AI, albeit with mixed results.
3 things in business
1. Gen Zers aren’t the only ones fed up with their employers. It turns out that Generation X and baby boomers are not as loyal to the workplace as senior correspondent Aki Ito previously thought. After all, they actually remember a time when the company once treated them well.
2. Welcome back, Jon Stewart. His long-awaited return to “The Daily Show” takes place tonight, but a lot has changed in the television world since he was gone. The people who still tune in to television are a much older and smaller group.
3. Secretly working two jobs is risky, but it might be worth it. Job security was the main reason one millennial sneaked into his second remote gig — he now makes $250,000 a year. He shared some advice for workers trying to get by with overemployment.
In other news
What happened today
Insider Today Team
Dan DeFrancesco, deputy editor and anchor based in New York. Hallam Block, editor, lives in London. Jordan Parker Erb is an editor based in New York.
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