The stock market is showing signs of a forthcoming investment opportunity, according to a recent report by Richard Bernstein Advisors (RBA). The firm's deputy CIO, Dan Suzuki, believes that the current market signals could lead to a significant shift in investment dynamics.
What Happened: Richard Bernstein Advisors (RBA) has been signaling a potential investment opportunity amidst concerning signs in the stock market, reported Business Insider. The firm has been predicting a "once-in-a-generation" opportunity for months, and it appears to be on the verge of realization.
According to RBA's Deputy CIO Dan Suzuki, the market's current situation, particularly the dominance of a few stocks, could lead to a broader market shift. The firm's thesis, proposed at the end of last year, suggests that the extraordinary market leadership of a small group of stocks will expand to the wider market, resulting in stronger gains for the other 493 S&P 500 stocks.
However, Suzuki warned that the corporate earnings of major tech companies are expected to decelerate in the next quarter. Only three of the so-called "Magnificent Seven" — Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon.com Inc (NASDAQ:AMZN), NVIDIA Corp (NASDAQ:NVDA), Tesla Inc (NASDAQ:TSLA), and Meta Platforms Inc (NASDAQ:META)— are projected to have over 25% earnings growth in 2024.
"I think eventually you are going to see a bear market," Suzuki said of large-cap tech stocks in an interview with Bloomberg on Friday.
"I've gone so far as to say that I think this is a bubble, and I don't use that term lightly. So eventually that suggests that there's going to be a reckoning."
On the other hand, sectors like small caps, industrials, energy, and emerging markets are expected to see an acceleration in earnings in the coming year. This, combined with extreme valuations and investor concentration in mega-cap tech firms, could lead to a market shift away from these stocks.
Why It Matters: The market's focus on tech stocks, particularly the "Magnificent Seven," has been a recurring theme. Despite warnings of a possible correction, institutional investors have been backing further gains for these stocks as the most crowded trade, according to a Bank of America survey.
However, analysts have been cautioning about the extreme concentration in these stocks in hedge fund portfolios. This concentration has doubled since the beginning of 2023, raising concerns about the potential impact of a correction in these stocks.
Meanwhile, CNBC's Jim Cramer has also predicted a possible sector rotation away from the Magnificent Seven stocks, suggesting that investors may move away from these leading tech stocks to invest in sectors that have experienced significant declines.
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