Swiss banking giant UBS’ chief U.S. equity strategist, Jonathan Golub, recently indicated a shift in the stock market’s dynamics, specifically concerning the Magnificent Seven – a group of high-flying stocks including Apple, Alphabet, Microsoft, Amazon, Meta, Nvidia, and Tesla.
These companies, which have driven much of the stock market’s growth over the past year, are now seeing a significant slowdown in their momentum.
In a new research note reported on Monday, Golub downgraded six of these stocks –excluding Tesla – from Overweight to Neutral, as reported by Yahoo Finance.
His decision follows what he describes as “the largest weekly market cap loss in history” for these firms. Notably, Nvidia faced its worst single-day price drop since March 2020, plummeting by 10% last Friday, although it did manage a 4% recovery on Monday.
Golub, who evaluates sectors within the S&P 500 rather than individual stocks, remains optimistic about the technology sector at large. He continues to recommend an Overweight stance on technology, excluding the six companies he downgraded. He clarifies that his cautious stance on these stocks does not arise from concerns over their valuations or the potential of AI technology.
“Our downgrade of the Big 6 is not predicated on extended valuations or doubts about AI,” Golub explicitly stated. “Rather, it is an acknowledgment of the difficult comps and cyclical forces weighing on these stocks, which do not apply to other TECH+ companies or the rest of the market in the same way.”
Despite the projected strong earnings growth for Amazon, Alphabet, Meta, Microsoft, and Nvidia, which FactSet estimates at around 64% for the first quarter, the broader S&P 500, excluding these tech giants, is expected to see a 6% decline in earnings.
However, the trend is expected to reverse by the year-end, with the tech quintet’s growth slowing significantly to just under 20%, while the other 495 companies in the index are forecasted to increase their earnings by about 17%.
“Investors attribute the run in mega-cap stocks to animal spirits and the impact of AI,” Golub observed. “However, our work indicates that surging earnings momentum (change in forward growth projections) fueled this upside. Unfortunately, this momentum is collapsing.”
Golub’s reassessment comes amid signs that the U.S. economy is growing faster than expected this year, which he believes will lead to a broadening in earnings performance across different sectors over the next year. Despite the recent turbulence, Golub maintains his year-end target for the S&P 500 at 5,400, supported by robust economic fundamentals.
While the market anticipates earnings reports from Tesla, Meta, Microsoft, and Alphabet later this week, investors and analysts alike are keen to see how these adjustments will impact the broader market landscape in the near term.
Source: Newsroom
