Richard Bernstein, chief investment officer at asset management firm Richard Bernstein Advisors, has good news for investors: US stocks may be about to usher in a huge investment opportunity — and this opportunity may not be in the market area investors expect. He believes that although the “Magnificent Seven Sisters” dominated the rise of the S&P 500 index in 2023, less impressive stocks are now expected to reap high returns over the next 10 years.

Bernstein said the upcoming swings in market leadership are a “once in a generation” buying opportunity, brewing in forgotten and unpopular sectors of the market. Bernstein said he thinks this is similar to the situation in the first decade of this century, when the market capitalization of the largest leading stocks in the S&P 500 index shrank, while weak sectors such as energy and emerging markets received “huge returns.”

In a recent report, he wrote: “Despite increasing profit growth, investors generally continue to focus on so-called 'Rosy' stocks. This narrow leadership seems totally unreasonable, and their extreme valuations suggest that there is a once-in-a-lifetime investment opportunity for almost anything other than these 7 stocks.”

So, how is this time different from a period where the leading positions in other markets are constantly changing?

Bernstein was the chief investment strategist at Merrill Lynch Securities. He said that his expectations for a stock market boom cannot be confused with the two-year pandemic market rebound. The stock market rebound in these two years was mainly dominated by so-called “post-pandemic opening beneficiaries”, similar to the current “Magnificent Seven Sisters.” His argument depends on the broader market being boosted by soaring economic resilience and corporate profitability.

Bernstein said, “Are there really only 7 growth stories for the entire global stock market? Then, the second statement is, are these seven companies really the fastest growing companies in the global stock market? The answer to both questions is no.”

Of the 130 US companies whose profits increased by at least 25% in the 12 months ending October 15, Amazon is the only stock listed among the seven giant technology companies.

At the same time, profits from other companies in the market are rising, which has enabled investors to abandon super-expensive large stocks and switch to more attractively priced stocks. According to MSCI All Country World Index (MSCI All Country World Index) data, corporate profits will bottom out in 2023 and will rise in 2024.

Bernstein added, “As growth starts to accelerate, it makes less sense to pay a premium for growth. History shows that when economic growth becomes more abundant, investors compare economic growth, so the shift to wider, cheaper markets seems consistent with history.”

Bernstein pointed out that as investors flock to more attractive market segments, such as small-cap and mid-cap stocks, the huge gains in large stocks will be weakened. In his view, the market value of the “Magnificent Seven Sisters” will evaporate by 20% to 25% in the next 10 years, and it is quite realistic that the Russell 2000 Index will rise 20% to 25%. Bernstein said, “On the other side of the seesaw, they're very depressed. You can reap huge returns. Richard Bernstein Advisors has increased their stock holdings in almost every area of the market, with the exception of these seven companies.”

Bernstein isn't the only one with bullish views. Other forecasters point out that the general market will rise sharply in the future. Bank of America, Deutsche Bank, and Fundstrat recently predicted that the S&P 500 index would once again reach a record high.

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