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, warns the CEO and founder of one of the world’s largest independent financial advisory asset management and fintech organisations.
The warning from Nigel Green comes as high-profile market commentators, among others, flag the rewards across influential media outlets for investors for having exposure to seven big-name companies.
The stocks being promoted are Apple, Microsoft, Nvidia, Amazon, Meta, Tesla and Alphabet.
He comments: “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 deVere CEO continues: “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,” notes Nigel Green.
“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.
He concludes: “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.”