This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
Old habits die hard, in investing and in life.
Take for example an employee who has been doing the same thing for a decade, then gets a promotion in large part because of what they were doing the last decade. It’s evolve or die in this new role — risk clinging to the past and its myriad of practices, or embrace the future and crush it.
The same could be applied to investors at this very moment in time.
Evolve your thinking around the Magnificent Seven trade that has brought you immense paper profits the past year, or get your portfolio blown up in the not-too-distant future.
Am I being too harsh? Maybe, but I need to be because I truly feel that investors have forgotten there are more ways to make money than hitting the buy button on seven tech stocks. And with their blinders on, they are overlooking new trends/news/info that warrant a short-term pause on the explosive Mag Seven trade.
First thing that is fresh to the scene is an updated market narrative.
If late 2023 was all about interest rate cuts in an election year, then the first half of 2024 is shaping up to be about the potential for next to no rate cuts this year.
Headline job creation of 353,000 for January and big upward revisions for job gains in November and December signal an economy doing pretty darn well. It’s an economy that in no way needs a rate cut this spring. An economy so strong as to justify a more hawkish Fed.
“Forget the anecdotal signs of tech layoffs and companies going for efficiency this year, the economy is producing hundreds of thousands of new jobs,” FWDBONDS chief economist Chris Rupkey wrote in a client note.
“Fed officials are going to have to sharpen their pencils on the timing of any interest rate cuts this year because higher rates are sure not slowing the economy down.”
In short, the incoming data from the last two weeks suggests no rate cuts are imminent — and that removes a key tailwind that powered market psychology (and inflated trading multiples) around Mag Seven stocks.
Then, secondarily, there are the fundamentals of these tech behemoths as seen on their recent earnings days.
I’m not sure about you, but I haven’t been blown away by results out of Mag Seven stalwarts Apple, Alphabet, Microsoft and Tesla. All of these reports had warts that should call into question trading multiples on them. Apple’s performance in China was weak. March quarter guidance was weak. iPhone sales didn’t wow.
As for Alphabet, it missed on cloud sales. Tesla’s quarter and Elon Musk-led earnings call was littered with red flags.
Microsoft’s quarter poked a hole in the narrative — for now — that all its new AI is going to lead to a massive reappraisal of its earnings estimates by the Street in 2024. Stripping out the first-ever dividend by Meta being announced, its quarter was reasonable — but it’s also jacking up its 2024 capex a ton.
Amazon’s quarter was the lone rockstar through and through. Accelerating sales out of AWS, impressive operating margin expansion, and a killer guidance.
Take all of this new info together and the message should be clear to investors … evolve your thinking on the Mag Seven, or else.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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