The so-called Magnificent 7, save Tesla, have lived up to their billing so far this year, showing that despite all this talk of market rotation, mega-cap tech stocks are not giving up the mantle of market leadership so easily.
And nor should they, says Quincy Krosby, chief global strategist at LPL Financial.
“The big seven names are strong,” said Krosby. “They have very little debt. They've got rock solid balance sheets. And when the market is concerned about the economic backdrop, the money flows right into those names because they have become, in essence, a defensive block of names.”
And there’s more, according to Krosby.
“They make money. They've got good management. Their footprint globally is strong and money flows in there,” added Krosby.
The S&P 500 as a whole is up 14 percent this year so its clear that the Magnificent 7 are driving the bus. Or at least 6 of them are.
For those scoring the Mag 7 at home, Alphabet (Ticker: GOOGL) is up 21 percent, Amazon.com (Ticker: AMZN), up 20 percent, Apple (Ticker: AAPL) up 17 percent, Meta (Ticker: META) up 31 percent, Microsoft (Ticker: MSFT) up 13 percent, Nvidia (Ticker: NVDA) up 133 percent and Tesla (Ticker: TSLA) down 11 percent.
Market strategists, of course, have been waiting for - if not cheering for - a rotation into small caps, believing that it is the best way to prolong the bull run. Krosby generally agrees that a broadening of the rally is healthy for the market overall, but does not see the shift from large to small as entirely risk free. For the record, the Russell 2000 is up 10 percent in 2024 after its recent surge.
“Let's remember that the Russell 2000, in terms of its risk profile, is riskier than the S&P 500. It has a more volatile profile,” said Krosby.
In terms of her favorite sectors heading into the back half of 2024, Krosby is a fan of financials and industrials. She also likes technology stocks, yet is “waiting to go in at a more attractive price point.”
Outside the US, Krosby is big on Japanese equities, especially the exporters which have significantly benefitted from the weak Yen.
Back home, Krosby does not see the upcoming Presidential election as too much of a risk to her forecast, even if it does cause the market to get jittery.
“The fact of the matter is that we'll have pockets of volatility,” said Krosby. “We see that as pockets of opportunity. And we do think that the year will probably end in the green because history dictates that.”
Krosby will be watching the yield on the benchmark 10-Year Treasury, however, for guidance on the equity market. Last year, there was a relatively tight inverse relationship between the yield on the 10-Year Treasury and stocks. Krosby believes that linkage could return in coming months.
“The 10-Year yield is extremely important to help equities,” said Krosby. “However, if it comes down at too fast a pace, the market is going to be scared because it will sense an economic growth scare.”
Should that happen, and rates plummet, then buy utilities, says Krosby.
“Utilities come in with a higher yield. But utilities are also increasingly attached to infrastructure spending,” said Krosby.
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