{"id":10067,"date":"2023-11-06T07:07:16","date_gmt":"2023-11-06T07:07:16","guid":{"rendered":"https:\/\/infundpros.com\/markets\/the-big-7-have-been-winners-now-its-time-for-the-sp-500s-other-493\/"},"modified":"2023-11-06T07:07:16","modified_gmt":"2023-11-06T07:07:16","slug":"the-big-7-have-been-winners-now-its-time-for-the-sp-500s-other-493","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=10067","title":{"rendered":"The Big 7 Have Been Winners. Now It\u2019s Time for the S&P 500\u2019s Other 493."},"content":{"rendered":"
\n

It\u2019s a lopsided world. Stock markets are a seesaw with the so-called Magnificent Seven on one side and everything else on the other side. That presents a \u201conce in a generation opportunity\u201d in everything except those companies, says Richard Bernstein Advisors.<\/p>\n

The seven big tech firms\u2014
\n Apple
\n (ticker: AAPL),
\n Amazon.com
\n (AMZN), Google parent
\n Alphabet
\n (GOOGL),
\n Facebook
\n parent Meta Platforms (META),
\n Microsoft
\n (MSFT),
\n Nvidia
\n (NVDA), and
\n Tesla
\n (TSLA)\u2014have played an outsize role in this year\u2019s stock market rally. The
\n S&P 500
\n (SPX) has delivered total returns of more than13% this year, but If you remove the shares of the seven, the index is about flat.<\/p>\n

\n

Most investors favor the high side of the seesaw with the seven stocks, RBA said in a recent note. The firm\u2019s portfolios, however, \u201care squarely positioned\u201d on the other side.<\/p>\n

\u201cPeople like the seven stocks simply because the stocks are going up, not that there\u2019s any fundamental reason behind them,\u201d Richard Bernstein, RBA\u2019s CEO and chief investment officer, told Barron\u2019s<\/em>. \u201cThat says that there\u2019s got to be opportunities elsewhere.\u201d<\/p>\n

He said people laugh when he quips that he likes everything that\u2019s not the Magnificent Seven, adding: \u201cThat\u2019s not quite true, but it\u2019s not that far off.\u201d <\/p>\n

Bernstein said the firm\u2019s research shows that narrow markets are economically justified when growth is scarce, such as during a profits recession, because investors gravitate toward the fewer companies that can produce substantial growth. The narrow leadership of the Magnificent Seven could be justified if growth was very scarce. The problem is that it isn\u2019t.<\/p>\n

In fact, corporate profits are accelerating and the overall economy looks set to remain quite healthy, according to RBA, which manages more than $15 billion using global macro-based strategies and investing primarily in exchange-traded funds.\u00a0<\/p>\n

Its ETF strategies are available at several of the larger broker dealer platforms and aren\u2019t sold directly to retail investors. <\/p>\n

RBA screened U.S. companies for those with earnings growth of 25% or more. More than 130 companies passed the screen, but only one was from the group of Magnificent Seven and ranked 111th.\u00a0<\/p>\n

That suggests \u201cthere is nothing particularly magnificent about the Magnificent Seven,\u201d the firm said. \u201cSuch narrow leadership seems totally unjustified and their extreme valuations suggest a once-in-a-generation opportunity in virtually anything other than those seven stocks.\u201d<\/p>\n

The Magnificent Seven are trading at an average price-to-earnings ratio of\u00a041, compared with the equal-weighted S&P 500\u2019s P\/E of\u00a015, according to RBA.<\/p>\n

\u201cThere have been many studies that show long-term returns are a function of valuation,\u201d said Bernstein. \u201cI always point out to people, it\u2019s probably not a good idea to go through life paying Bentley prices for Volkswagens.\u201d<\/p>\n

The big seven tech stocks are expensive relative to smaller cap stocks, the rest of the world, and emerging markets. \u201cNo matter how you want to slice and dice it, everything in the world is cheaper than these seven stocks,\u201d he added. \u201cIt\u2019s starting to argue that we could be looking at a lost decade in equities because the seven stocks are such a dramatic proportion of the index.\u201d<\/p>\n

RBA\u2019s flagship\u00a0strategy\u00a0is the $7.1 billion Global Risk-Balanced Moderate ETF Strategy, which uses a blended benchmark that includes the MSCI ACWI Index for the stock portfolio. <\/p>\n

It is overweight non-tech cyclical stocks, including industrials, energy, and materials.\u00a0<\/p>\n

\u201cThe profit cycle by definition is determined by cyclicals,\u201d said Bernstein. \u201cStable growth is too stable. So if the profit cycle is slowing down, you don\u2019t want to have cyclical exposure. If the profit cycle is heating up, you do.\u201d\u00a0\u00a0<\/p>\n

The biggest overweight is non-U. S. stocks, said Bernstein, who likes Canada, China, Europe, and Japan. \u201cWe think there\u2019s a lot of opportunity in many parts of the world because profitability is starting to rev up and if you\u2019ve got cheap assets and everybody hates them and profitability is starting to rev up, that\u2019s a great story.\u201d<\/p>\n

Write to Lauren Foster at lauren.foster@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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