According to market consulting firm Richard Bernstein Advisors (RBA), the hottest stocks in the market are sending a bearish signal, which is a sign that an investment opportunity that cannot be missed is approaching.
RBA's Deputy Chief Investment Officer, Dan Suzuki, said that a once-in-a-lifetime opportunity is approaching and may ultimately be right in front of us.
The company first proposed this viewpoint at the end of last year, and the key is that a few stocks are in an extreme market leadership position in the overall market. The other 493 components of the S&P 500 index will experience stronger gains after the so-called "tech seven" dominate.
Suzuki stated that although technology stocks have accounted for a huge share of market growth in the past 15 years, the corporate profits of large technology companies will slow down in the next quarter.
RBA stated in a recent report that among the seven giants of Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta, only three companies are expected to see profit growth exceeding 25% in 2024.
This is different from sectors such as small cap stocks, industrial stocks, energy stocks, and emerging market stocks, where profits are expected to accelerate in the next year.
Suzuki said that at the same time, valuations and investors' concentration on large technology companies seemed extremely extreme, even more serious than in the previous stock market foam period. The top 10 stocks in the S&P 500 index currently account for over 30% of the index's total market value, the largest share in over 40 years.
He said that at this level of prosperity, these companies may perform poorly, leading investors to "jump ship" to other areas of the market. He pointed out that at the beginning of the 21st century, the Internet foam burst, followed by a decade of low returns.
"I think eventually you will see a bear market. I even said that I think this is a foam, and I don't use the word" country "easily. So, in the end, it indicates that there will be a return," he added.
But according to RBA, this is actually good news for almost all other sectors of the market, as investors will eventually turn to other stocks and cause the pendulum to swing in another direction. The company explained that although the NASDAQ index plummeted during the burst of the Internet foam, unpopular industries such as energy and emerging markets have achieved "amazing" returns in the next few years.
The company expects the same phenomenon to occur as the extreme valuations of technology stocks are expected to fall. Suzuki said he believes that in the next 10 years, the market value of the constituent stocks of the "Technology Seven" may eventually evaporate by 20% -25%, while the small cap stock market value in the Russell 2000 index may skyrocket by 20% -25%.
"I think this is a once-in-a-lifetime opportunity," Suzuki said.
Other experts on Wall Street have also warned of a significant pullback in technology stocks. As investors join the hype about generative artificial intelligence, technology stocks have rebounded to dazzling heights. Investment expert Bill Smead said that the stock market boom of the "tech seven giants" is a "speculative frenzy" that may soon come to an end, leading to what he called a "stock market failure".