Nigel Green, the CEO and founder of one of the largest independent financial advice, asset management, and fintech businesses in the world caution that while the “Magnificent Seven” equities that account for around 90% of gains on Wall Street’s S&P 500 this year are spectacular, they are not a panacea for investors.
The Magnificent Seven include Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA).
Nigel Green’s caution comes as prominent market experts and others point out the benefits to investors of exposure to seven well-known companies in influential media venues.
According to Green, the volume was getting louder, and the commentators’ frenzy reached a fever pitch about the so-called Magnificent Seven stocks. He noted that this hype was risky because it can convince investors that these equities are the key to creating long-term wealth, which they aren’t, at least not by themselves.
“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 to be on the 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 to maximize returns per unit of risk (volatility) incurred.”
Green concludes that although the Magnificent Seven are incredibly important, they’re not a panacea. In his opinion, some investors will get burned unless some of the heat is turned down. “Diversification is still the best strategy for investors to achieve long-term financial success because it has been shown to minimize risk, smooth-out volatility, exploit different market conditions, maximize long-term returns, and protect against unforeseeable external events.”
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