The reign of the “Magnificent 7” stocks that have been driving the stock market rally over the past year may be coming to an end, according to UBS Investment Bank Chief US equity strategist Jonathan Golub. In a new research note, Golub downgraded six of these tech giants – Apple, Alphabet, Microsoft, Amazon, Meta, and Nvidia – from Overweight to Neutral.
The recent market cap loss for the Magnificent 7 was the largest in history, with all seven of the big tech leaders seeing a decline from their recent highs. Nvidia, in particular, experienced a 10% single-day drawdown, its worst performance since March 2020.
Golub attributes the success of these mega-cap stocks to surging earnings momentum, but he believes that this momentum is now collapsing. While he remains Overweight on technology as a sector, he sees other areas poised to outperform the largest stocks in the S&P 500.
The upcoming quarterly earnings reports from Tesla, Meta, Microsoft, and Alphabet will provide further insight into the performance of these tech giants. FactSet projects that Amazon, Alphabet, Meta, Microsoft, and Nvidia will see a combined earnings growth of 64%, while the other 495 companies in the S&P 500 are expected to report a decline of 6%.
Looking ahead, Golub anticipates a shift in earnings growth, with the five tech giants projected to see slower growth by the end of the year. This could lead to a broader distribution of earnings performance across the market, potentially impacting stock prices in the near term.
Despite these changes, Golub maintains his bullish outlook for the S&P 500, with a target of 5,400 by the end of 2024. He believes that positive fundamentals and a robust economy will support this target, even as the landscape of stock market leaders evolves.
As investors brace for potential disruptions in the market, the future of the Magnificent 7 stocks remains uncertain. Stay tuned for further developments as the earnings season unfolds.
