Investment expert Sarat Sethi highlights a shift in market dynamics as speculative stocks gain momentum while the ‘Magnificent 7’ — Alphabet GOOGL GOOG, Amazon AMZN, Apple AAPL, Meta Platforms META, Microsoft MSFT, NVIDIA NVDA, and Tesla TSLA. —lags.
What Happened: On Monday, Sarat Sethi of Douglas C. Lane & Associates commented on the current market trends. He observed that as the market rallies broadly, the major tech stocks known as the ‘Magnificent 7’ are not participating in the surge. Instead, retail speculators are turning their attention to other areas of the market.
"It's the greater fool theory: who’s going to be the last one holding the bag? These are not fundamental companies. Most of them are not even making money at this point,” Sethi added.
“So the question is when you do get a pullback in the market…these stocks are going to have a huge beta. They are not just going to go down by one or two percent, they could go down in double digits at that point.”
Why It Matters: The stock market has experienced a “frightful yet fulfilling” first quarter in 2024, with the S&P 500 marking a nearly 10% price gain. This rally, which includes a 30% climb from its October low, has led to cautious optimism among investors. Analysts are considering the historical patterns that suggest a strong start often leads to continued gains throughout the year.
However, as the rally of these tech giants slows, investors and analysts are identifying potential successors, dubbed the “Mag 7 Bench.” Names like CrowdStrike Holdings and Advanced Micro Devices are among those being considered for the next wave of market leaders. This transition is significant as it may indicate a changing landscape in the equity markets, where new players are emerging to challenge the dominance of the established tech giants.
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