$S&P 500 Index(.SPX.US)$Most of this year's gains can be attributed to the “Big Seven” stocks.
The group includes$Apple(AAPL.US)$,$Amazon(AMZN.US)$,$Alphabet-A(GOOGL.US)$,$Meta Platforms(META.US)$,$Microsoft(MSFT.US)$,$NVIDIA(NVDA.US)$with$Tesla(TSLA.US)$Although the price of artificial intelligence has continued to rise this year, some companies have benefited from the boom surrounding artificial intelligence. The S&P 500 index has soared nearly 19% so far this year.
However, Mike Wilson (Mike Wilson), chief US stock strategist at Morgan Stanley (Morgan Stanley), pointed out the “fragmentation” of the US market: large premium stocks performed extremely well, while “lower quality” small-cap stocks fell into a quagmire of profit decline. “So what you're seeing is a real differentiation,” he said.
Wilson pointed out that positive earnings revisions were one thing they had in common in 2023, and that year's earnings revisions for most companies were negative.
“Now, can this situation continue?” “I think it will be more difficult for these companies to generate the same relative earnings correction in 2024. This is our view. The market will expand next year, and we will see more than 490 companies participate more,” he said, referring to other stocks in the S&P 500 Index.
As valuations decline, he said, the seven stocks “may be further adjusted” to reflect “the normalization of their growth rate.” His target price for the S&P 500 Index in 2024 is 4,500 points.
Wilson said the risk of a recession next year will be higher than normal. “If this happens, you'll want to hold quite a few defensive assets,” he said, but added that the US economy hasn't reached that level yet.
“So the late-cycle environment we are in is likely to continue. We have always suggested that defensive growth stocks be barbell types, followed by industrial stocks, and late-cycle cyclical stocks such as industry and energy,” he said.
A barbell strategy involves balancing risk and reward by investing in both extremes of high-risk and low-risk assets.
In another report released recently, Morgan Stanley said that historically, the current environment is favorable to traditional defense stocks such as healthcare, essential consumer goods, and utilities, select growth opportunities, and late-cycle stocks such as industry and energy.
The bank said that the choice for growth opportunities is likely to be stocks with “less volatile growth.” The bank screened such stocks and rated them as overstocked. They are classified as growth stocks, and their volatility over the past 252 days is below the median market value.
Morgan Stanley said, “In the current environment of interest rate fluctuations, we believe this type of fund has achieved a balance between relatively stable performance and attractive growth.