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Amundi, one of the world’s largest asset managers, predicts that the top stocks in 2023 will underperform in 2024.
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Strategists are predicting a mild recession and say the market’s top performers will come back to earth.
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The firm recommends that investors limit their exposure to hyper-growth stocks such as those included in the Magnificent Seven.
European asset management giant Amundi, which manages $2 trillion, expects economic growth to slow over the coming year, and as a result, the performance of top-performing mega-cap stocks will also slow.
Craig Sterling, head of equity research at Amundi US, said during a New York Stock Exchange panel on Wednesday that the firm is underweight U.S. stocks in 2024 and believes the current stock market is very different from a year ago. He said there was.
“We expect Mag7 to trade at a premium relative to the broader market, primarily given its superior growth and profit margins, but the concentration of market leaders and its average share price… The disparity in ratings is historic.” “This dynamic generally doesn’t end well.”
of The S&P 500 performed well in 2023 Although there is a 25% increase, Magnificent Seven Stocks from Apple, Tesla, Microsoft, Amazon, Nvidia, Meta, and Alphabet did the heavy lifting. The surge among the seven companies accounted for more than 60% of the benchmark index’s gain last year.
Mr. Sterling said one reason The Magnificent Seven outperformed in 2023 was because earnings expectations were unusually low. These Big Tech companies were able to reduce costs and exhibit better trajectories than their peers for most of the year.
The group’s fourth-quarter profit is expected to rise 46%. Meanwhile, the other 493 stocks are estimated to have a combined 7% decline in earnings, a lopsided trend that has continued over multiple quarters.
“AI happiness has taken over the baton,” Sterling said. “Typically, markets tend to overestimate the short-term impact of new technologies, which leads to stock price disappointment.”
Future economic slowdown
Amundi’s US team is advising investors to limit exposure to areas with “excess valuations” as they are not priced appropriately for the global economic slowdown. The strategist is Mild recession in the US And stock price performance will also weaken.
Marco Pirondini, Amundi’s chief investment officer, said in a fireside chat after Wednesday’s event that the firm is actually underweight Magnificent Seven shares, adding that He said Seven shares have benefited from a 10-year low in interest rates, which has boosted valuations.
“The United States is very expensive compared to our country and the world,” Pirondini said. Looking ahead, he said bonds look attractive, with limited downside and could be poised to benefit from a change in Fed policy and easing inflation.
The executive also said Amundi will be monitoring financial sector stocks over the next year for both U.S. and international stocks.
Markets have already begun to price in big interest rate cuts from the Fed to support Magnificent Seven stocks, but Amundi believes expectations are too optimistic at this point. If interest rates rise over a long period of time, it could actually put pressure on stock prices and profits.
Either way, many on Wall Street have a positive outlook. Ned Davis Research, Bank of America, RBC, Goldman Sachs and others spoke out. soft landing call And US stocks continue to rise. These companies believe that the Federal Reserve can create a no-recession scenario that will ultimately benefit investors.
“As the economy and its sub-components, inflation and interest rates, normalize, the market horizon widens and we are not immune to slowdowns, recessions and many operational distortions that should be positive for average stock price growth,” Sterling said. I predict that people will start thinking about how to overcome this.” ”
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