Richard Bernstein, a member of the Hall of Fame for Institutional Investors and founder and CEO of Richard Bernstein Advisors, stated that the US stock market is about to usher in a huge investment opportunity, which will come from stocks that have been "forgotten" by the market.
He believes that although the "Big Seven" (seven technology stocks such as Avida) have led the rise of the S&P 500 index this year, those less eye-catching stocks are now expected to achieve high returns in the next 10 years.
Bernstein stated that the upcoming market leader swing is a "once in a generation" buying opportunity brewing in sectors that are forgotten and unpopular. He believes that this is similar to the situation in the first decade of this century, when the largest leading stock market in the S&P 500 index experienced a decline in value, while vulnerable sectors such as energy and emerging markets received "huge returns".
Despite increasing profit growth, investors generally continue to pay attention to the so-called 'Big Seven' stocks. This weak leading advantage seems completely unreasonable, and their extreme valuations indicate that almost everything except these seven stocks has a once-in-a-lifetime investment opportunity, "he wrote in a report.
Bernstein worked on Wall Street for decades and served as the Chief Investment Strategist at Merrill Lynch for many years before founding his own consulting firm in 2009.
What's the difference this time?
So, what is the difference between this time and other periods of constantly changing market leadership?
He said that his expectation of the stock market boom should not be confused with the rebound of the COVID-19 market. The rebound of the stock market in the past two years was mainly led by the so-called "economic reopening", similar to the current "Big Seven". His argument depends on the future market being boosted by economic resilience and soaring corporate profitability.
Is there really only 7 growth stories in the entire global stock market? Then, the second argument is, are these seven companies really the fastest-growing companies in the global stock market? The answer to both questions is no, "he wrote.
Data shows that Amazon is the only stock belonging to the "Big Seven" among 130 US companies with a profit growth of at least 25% in the 12 months ended October 15th.
Specifically, in addition to Amazon, the so-called Big Seven companies also include six companies: Apple, Microsoft, Alphabet, NVIDIA, Tesla, and Meta.
At the same time, the profits of other companies in the market are on the rise, allowing investors to abandon super expensive large stocks and switch to stocks with more attractive prices. According to the MSCI All Country World Index, corporate profits seem to have bottomed out in 2023.
As growth begins to accelerate, the significance of paying a premium for growth is diminishing. History shows that as economic growth becomes more abundant, investors compare economic growth, so turning to broader and cheaper markets seems consistent with history, "the report said.
Bernstein predicts that as investors flock to market sectors with more attractive prices, such as small cap and mid cap stocks, the huge gains in large cap stocks will be reduced. In his view, in the next 10 years, the market value of the "Big Seven" will evaporate by 20% -25%, and the expectation that the Russell 2000 index will rise by 20% -25% is expected to be realized.