In a recent article by Mark Hulbert on MarketWatch, he argues that the current ‘Magnificent Seven’ stocks, referring to the tech giants in the S&P 500 – Apple, Microsoft, Amazon, Facebook, Alphabet, Netflix, and Tesla, may not have promising long-term prospects. Contrary to popular belief, Hulbert suggests that these companies may not dominate the stock market in the next decade.
Hulbert begins by pointing out that historically, the largest companies in the stock market tend to underperform over the long term. He presents evidence from a study conducted by Dimensional Fund Advisors that supports this claim. The study found that the largest U.S. stocks have, on average, produced lower returns compared to small-cap and value stocks over the past 30 years.
Hulbert reasons that this is because large-cap stocks often become overvalued due to their popularity and investor demand. As a result, their future returns are diminished. He warns investors to be cautious when it comes to investing in the ‘Magnificent Seven’ stocks solely based on their current popularity and market dominance.
The author further questions the sustainability of these companies’ business models. He argues that the tech giants may face challenges in maintaining their market dominance for several reasons. First, regulatory scrutiny is increasing as governments around the world seek to address potential antitrust concerns. Second, new competitors could emerge, potentially disrupting the status quo of these giant companies. Finally, technological advancements and changing consumer preferences could lead to a shift in the dominance of these companies.
Hulbert acknowledges the strong performance of these companies in recent years but cautions against assuming that this trend will continue indefinitely. He advises investors to diversify their portfolios and not rely too heavily on these tech giants. By diversifying, investors can reduce their exposure to the potential risks associated with these large-cap stocks.
In conclusion, Mark Hulbert’s article challenges the notion that the current ‘Magnificent Seven’ stocks will maintain their dominance in the stock market over the long term. He highlights the historical underperformance of large-cap stocks and raises concerns about the sustainability of these companies’ business models. Hulbert advises investors to consider diversifying their portfolios to mitigate the risks associated with these tech giants.