The "Magnificent Seven" mega-cap stocks played an outsized role in the market's rally in 2023 with names like Apple (AAPL) and Microsoft (MSFT) driving the recent outperformance.
Now, Wall Street is split over whether tech's momentum can continue in 2024.
Yahoo Finance Markets Reporter Josh Schafer discusses Bank of America's warning that a 'January rout in mega-cap tech is now consensus.'
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith.
Video Transcript
SEANA SMITH: Josh, let's get back to the conversation we were having in terms of the leaders to the downside or the underperformers, I should say, when it comes to tech, obviously massive decliner. Yesterday, some new notes out on the street in terms of maybe what those future declines could potentially look like.
JOSH SCHAFER: Yeah, so Bank of America pointing out, they called it a street consensus and the street consensus being broadening out, so not necessarily-- and that's the understanding of the call here, I think, in general for '24. There aren't a lot of people saying don't own tech stocks and don't own the Mag Seven, they're saying maybe there's opportunity elsewhere and at some point, that means money has to come from somewhere, right?
And so if you're going to invest in those other 493 stocks, maybe you sell the stock that was up 250% last year, or at least take some profits from it. I mean, you look at that Mag Seven chart from last year that we love to show, there's some impressive gains in there. And so if anyone is profiting-- if anyone is profit taking in there, it might make a little bit of sense.
But Bank of America actually did make sense of how they think that call, at least for January, might not be fully correct, and I found that sort of interesting. They're pointing out something like a passive index fund actually bases their inflows on market capitalization. So if they're just sort of running a traditional model. I can see Myles' spinning.
But they are high mark-- they are high market caps, right? So at some point, some of the money could just naturally flow into their-- basically on the model and not necessarily because it's the play.
MYLES UDLAND: Yeah. I mean, I think-- and, you know, Josh, you and I spent a lot of time, over the last month, thinking about the consensus call for 2024, but really we just talked about what the consensus call for 2023 was, right? And that call was there would be a recession in the first half of the year, stocks would go down and the stocks would go back to flat for the year, which didn't happen at all.
Stocks ripped out of the gate, and we were off to the races. What's notable about 2024's consensus, and I think we're really seeing it in the last couple of days, the way people are discussing the move in tech, which is it's fine, right? We actually do need to catch up with all these other names because we saw again, you go back to that Magnificent Seven chart.
Meta is up 160% last year, NVIDIA triples I think. I mean, these companies are adding hundreds of billions, in Apple's case, nearly $1 trillion in market cap, to the biggest companies in the market. So everyone is saying, well, you got to do something else. You should buy like something smaller, or-- I mean, you could just pick a company that's got $100 billion market cap instead of $3 trillion, right, and it counts as small.
But I am very curious to see, you mentioned the flows part of it, how that manifests itself, because if there's one thing and, you know, you think about Mike Hartnett over at BofA, if there's one thing he loves more than anything, it's like, oh, well, everyone says this, so it's definitely going to be the opposite and for sure, the consensus trade is buy anything that doesn't have magnificent in front of it.
JOSH SCHAFER: Right. Yeah. And so you wonder maybe you just buy more magnificent, right? You're saying the opposite plays up?
MYLES UDLAND: Well, I-- I didn't-- I didn't mean to twist myself into that--
SEANA SMITH: Anyone's guessing--
MYLES UDLAND: I didn't mean to big brain it that much, but I guess we kind of got there in the end, right?
JOSH SCHAFER: Yeah. Yeah. I thought it was interesting just looking at the charts overall too. We didn't-- you mentioned it earlier, thinking about that cap weighted S&P 500 though, right? And like, really the trade that we've seen just kind of played out a little bit more to start the year in some ways, depending on what area of the market you were looking at.
But that cap weighted index has outperformed the normal S&P 500 for over a month and a half now.
MYLES UDLAND: Well--
JOSH SCHAFER: And that's what people were calling for, right? Isn't that the healthy rally we wanted? Didn't we want this?
MYLES UDLAND: The interesting part about the '24 consensus is that it actually happened between Thanksgiving and Christmas and now that's over. So we got '24 at the end of '23. We got to figure out something different over the next couple of months.
SEANA SMITH: We'll see, guys. It's only been one full trading day. You can't call it yet.
MYLES UDLAND: I just did. We just did. It's over.
JOSH SCHAFER: Year '25 price targets, here we come.
MYLES UDLAND: --over. Just like the day ends when the market opens, the year is over the second day the market opens. So--
SEANA SMITH: You heard it here first.
MYLES UDLAND: --happy new year 2025.
SEANA SMITH: All right. All right. Josh, thanks so much for that uplifting convo here.