The “Magnificent Seven” stocks that account for around 90% of gains on Walls Street’s S&P 500 this year are impressive, but not a silver bullet for investors – despite high-profile market commentators across influential media outlets telling investors this is the case.
The stocks being promoted are Apple, Microsoft, Nvidia, Amazon, Meta, Tesla and Alphabet.
The volume is getting louder and the frenzy is reaching fever pitch about the so-called Magnificent Seven stocks.
This hype is dangerous as it could lead investors to assume that these stocks are a silver bullet to build long-term wealth – and they are not, at least not on their own.
While I believe that exposure to these mega-cap tech stocks should be part of almost every investor’s portfolio, as they have robust fundamentals and are future-focused, especially in AI, they should not be exclusive.
The prospect of a less aggressive Federal Reserve has fuelled the surge in these stocks.
But it must be remembered that the Fed is almost certainly not done yet with interest rate hikes, especially following Friday’s robust jobs report. Even if the central bank takes a pause this month, we do expect further rate rises are on their way before they bring their hiking program to an end. This could potentially hit these powerhouse stocks.
Against a backdrop of cooling but still sticky-high inflation and fears of a recession, sectors that do well in a stagflationary environment should also be included in portfolios.
These include commodities, such as oil, as their prices typically rise in response to inflation; consumer staples like food, and hygiene products, as demand is likely to remain relatively stable; healthcare, as it provides essential services that are less affected by economic cycles; and utilities, including electricity, gas, and water as demand will also be pretty consistent.
Investors should, as always, remain diversified across asset classes, sectors and regions in order to maximise returns per unit of risk (volatility) incurred.
Diversification remains investors’ best tool for long-term financial success. As a strategy it has been proven to reduce risk, smooth-out volatility, exploit differing market conditions, maximise long-term returns and protect against unforeseen external events.
The Magnificent Seven are incredibly important, of course, but they’re not a panacea. I fear some investors will get burned unless some of the heat is turned down.
London-born Nigel Green is founder and CEO of deVere Group. Following in his father’s footstep, he entered the financial services industry as a young adult. After working in the sector for 15 years in London, he subsequently spent several years operating within the international space, before launching deVere in 2002 with a single office in Hong Kong. Today, deVere is one of the world’s largest independent financial advisory organizations, doing business in 100 countries and with more than $12bn under advisement. It specializes global financial solutions to international, local mass affluent, and high-net-worth clients. In early 2017, it was announced that deVere would launch its own private bank. In addition, deVere also confirmed it has received its own investment banking license.
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