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Can S&P 500 rally without the Magnificent 7 leading the way? 'Easy' says BofA

Published Dec 07, 2023 07:46AM ET
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© Reuters. Can S&P 500 rally without the Magnificent 7 leading the way? 'Easy' says BofA
 
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The market enthusiasm for artificial intelligence (AI) has attracted investors to high-flying tech stocks, reminiscent of past bubbles, raising concerns among analysts.

The surge in the so-called "Magnificent Seven" tech stocks parallels historical bubbles, such as the dot-com boom of the late '90s, which eventually led to a bust.

The “Magnificent 7” are collectively up about 80% this year while the rest of the S&P 500 index is up in the low single digits.

“Concerns about narrow breadth this year are misplaced in our view, given that with the exception of the Tech Bubble, bull markets since the 1980s ended with far better breadth than today’s,” analysts at Bank of America said.

They remind investors that only 24% of stocks in the S&P 500 trade within 10% of their all-time highs, lower than the historical average of 28% when compared to prior bull market peaks.

As a result, analysts say the S&P 500 can “easily” print the fresh record high even without the Magnificent 7 leading the way.

“We forecast an all-time high for the S&P 500 in 2024, with a year-end target of 5000. But unlike this year during which the Magnificent 7 did 70% of the work, we expect broader leadership,” the strategists added.

“If the seven stocks flatline, and if the multiples on forward earnings for the rest of the market flatlines, at about 15x on average, forecast EPS growth would put the index at 5100, above our target. The average stock would still be 13% below its post-COVID highs, with just one out of four eclipsing post-COVID highs.”

BofA’s tactical models have the Communication Services sector at a top position in the sector ranking, replacing Energy, which slipped to #3. Communication Services has consistently held the #1 spot in nine out of the past 10 months, outperforming the S&P 500 by over 20 percentage points during this period.

Tech climbed to #2, its highest rank since July, while Materials remained at the bottom for the second consecutive month. Industrials fell to the second-to-last sector, marking its lowest position since June 2021.

Can S&P 500 rally without the Magnificent 7 leading the way? 'Easy' says BofA
 

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Comments (7)
Jarran Strzelecki
Jarran Strzelecki Dec 07, 2023 9:47PM ET
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The s&p 500 can get to 5000 by end of next year. Yes AAPL, GOOG, AMZN are the savings account for America but I believe that investors will see the bargains in financials, consumer staples, reits, and soon energy.
Tom Michaels
Tom Michaels Dec 07, 2023 12:37PM ET
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It could if it wasn't manipulated.
zohreh shahheidari
zohreh shahheidari Dec 07, 2023 9:33AM ET
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100
ali jahanbin
ali jahanbin Dec 07, 2023 9:33AM ET
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sallam
Richard Warden
Richard Warden Dec 07, 2023 9:20AM ET
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When analysts look for slivers of hope, you know it's bad. The Dow Jones theory underscores that a true rally cannot depend on one area, such as tech. The great hope of AI stocks will come crashing down as the full picture of the economy and sad state of US leadership presently comes to bear its fruit. Best nvestment bets are shorts and shiny metals right now.
Waka Waka
Waka Waka Dec 07, 2023 9:20AM ET
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watch NVIDIA
Maxim Ivanov
Maxim Ivanov Dec 07, 2023 9:08AM ET
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Nah
Vince Jiun Yik
Vince Jiun Yik Dec 07, 2023 8:48AM ET
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Hahas
Mark Gesswein
Mark Gesswein Dec 07, 2023 8:31AM ET
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Simple answer: No.
 
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