Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Magnificent 7 stocks set to normalize: AllianceBernstein
Lee Jae-wook, a senior portfolio manager of AllianceBernstein, speaks during a press meeting at the Federation of Korean Industries conference center in Seoul, Wednesday. Courtesy of AllianceBernstein
By Lee Yeon-woo
The prices of the magnificent 7 (M7) stocks are set to normalize as the concentration on these seven mega-cap, high-performing tech stocks diminishes, narrowing the gap between M7 stock prices and others, AllianceBernstein said on Wednesday.
The M7 comprises Amazon, Apple, Google parent Alphabet, Meta Platforms, Microsoft, Nvidia and Tesla.
"Historically, after periods of concentration in a few select stocks, normalization has always followed," Lee Jae-wook, senior portfolio manager of AllianceBernstein, said at the press meeting. "Following the concentration observed from 2023 through the first half of this year, a prolonged period of normalization is expected."
Lee noted that, although M7 stocks performed well from 2023 through the first half of this year, their prices have surged too high due to inflated expectations, creating a valuation burden on the market.
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"These stocks now face higher performance benchmarks than ever before. They must significantly exceed market expectations to see a stock price surge," Lee said.
Even within the tech sector, the diversification of stocks driven by their respective fundamentals has started. Lee continued, "There were stocks like Nvidia and Meta Platforms that performed relatively well, while others like Tesla and Apple were relatively sluggish."
However, the general stock market in the U.S. is expected to be bullish, according to Lee. He attributed the rally to the resolution of uncertainties surrounding monetary policy, along with an overall rebound in corporate earnings and improvement in fundamentals expected in the second half of this year.
This means that other promising stocks could shine moving forward. "Excluding the impact of the M7 stocks from the S&P 500, the remaining 493 stocks are not highly valued on the surface; in fact, they are quite affordable," Lee said.
"Investing in high-quality growth stocks that have become relatively inexpensive will be beneficial in the second half of this year and into next year."
Lee highlighted the health care sector as his top recommendation.
He also explained that even after the U.S. Federal Reserve's anticipated first interest rate cut in September, policy rates will remain higher than the ultra-low levels of the past for some time. However, he noted that this will not negatively impact the stock market.
"Looking back over the past 100 years, inflation was typically between 2 percent and 4 percent. The ultra-low interest rate between 0 percent and 2 percent we observed over the last 10 years was unusual. In many ways, the current environment is more normal."
Yoo Jae-heung, another senior portfolio manager, anticipated the Fed to cut rates twice this year, in September and December. Next year, rate cuts are anticipated approximately quarterly, totaling four times. Other major banks, including the Bank of Korea, are expected to follow a similar trajectory, he said.
"During a rate-cutting cycle, investing in bonds is more advantageous than holding cash," Yoo said.