Yardeni Research is advising investors to dial back their exposure to the so-called Magnificent Seven technology giants relative to the broader S&P 500 (SP500), arguing that the group’s dominance in earnings growth is likely to moderate.
According to founder and veteran Wall Street strategist Ed Yardeni, competitive pressures are beginning to mount for the megacap leaders that have defined the market’s recent rally.
“We see more competitors coming for the juicy profit margins of the Magnificent 7,” Yardeni wrote, adding that advances in technology are instead poised to lift productivity and profitability across a wider swath of corporate America. In his view, “every company is evolving into a technology company.”
As a result, Yardeni said it no longer makes sense to recommend an overweight allocation to the Information Technology and Communication Services sectors within an S&P 500 portfolio, a stance the firm has held since 2010.
In a research note issued Sunday, Yardeni Research said it now favors a market-weight position in those sectors, funded by increased exposure to financials and industrials, along with an overweight in health care.
The call comes after years of extraordinary outperformance by the Magnificent Seven, a group that includes Nvidia (NVDA), Meta Platforms (META) and Alphabet (GOOG) (GOOGL). A widely followed index of the cohort has surged more than 600% since the end of 2019, far outpacing the S&P 500’s roughly 113% gain, as investors piled into Big Tech during the pandemic and amid the subsequent artificial intelligence boom.
Beyond U.S. equities, Yardeni also questioned the case for maintaining an overweight position in the United States within a global MSCI portfolio. He pointed to stronger relative performance by international markets this year, supported by more attractive valuations, a weaker dollar and the durability of corporate earnings outside the United States.