Yardeni Research now recommends effectively going underweight the Magnificent Seven megacap technology stocks versus the rest of the S&P 500, expecting a shift in earnings growth ahead.
“We see more competitors coming for the juicy profit margins of the Magnificent 7,” and expect that the productivity and profit margins of the rest of the S&P 500 will be boosted by tech, said Wall Street research veteran Ed Yardeni.
He added that in effect, “every company is evolving into a technology company.”
The Magnificent 7 stocks were mixed in premarket trading on Monday, with Tesla Inc., Meta Platforms Inc. and Nvidia Corp. underperforming peers.
The strategist said that it no longer makes sense to continue recommending overweighting the information technology and communication services sectors in an S&P 500 portfolio, after having kept that weighting since 2010, according to the research note Sunday.
The firm recommends market-weighting of the two sectors by adding to overweights in financials and industrials, and overweighting health care.
Investors are rotating out of the technology behemoths that drove virtually all of this year’s 16% advance in the S&P 500 and snapping up shares of risky small companies and old-economy transportation names that have lagged behind all year.
Since U.S. stocks hit their near-term low on Nov. 20, the Bloomberg Magnificent 7 Price Return Index has gained 6%, compared with a 11% rally in the Dow Jones Transportation Average and a 10% advance in the small-cap Russell 2000 Index.
The rotation comes as investors increasingly question the lift-all-tech-boats nature of the artificial intelligence trade, with heavyweights like Nvidia Corp. and Microsoft Corp. seeing rallies stall out.
Optimism that the U.S. economy is set to accelerate in the first half of 2026 has seen traders more willing to pile into value stocks at the cost of tech.
The Magnificent 7 merits special caution as “they’re competing more aggressively against each other and they’ve got more competition coming out of nowhere” Yardeni said in an interview with Bloomberg Television on Monday.
In particular, he cited the recent doubts about OpenAI’s dominance as well as the emergence of China’s DeepSeek earlier this year.
Yardeni is not alone in that view. Strategas Asset Management LLC advises clients to overweight a version of the S&P 500 that strips out market-cap bias relative to the cap-weighted version, with co-founder Jason De Sena Trennert citing expectations that President Donald Trump’s tax bill will lift consumer and capital spending.
He also pointed to the World Cup’s potential to drive and broaden economic and earnings growth next year.
A gauge of the Magnificent 7 stocks has risen more than 600% since the end of 2019, while the S&P 500 has gained 113%. That has come amid a Covid-pandemic-fueled trend toward Big Tech as well as a more recent boom in artificial intelligence.
Yardeni also sees little reason to continue overweighting the US in the all-country world MSCI portfolio, especially after global peers have beaten the US this year on cheaper valuations, the weaker dollar and resilience of worldwide corporate earnings.
“The U.S. now accounts for 65% of the market cap of the world’s stock market, so it’s hard to recommend overweighting something that is already quite overweight,” he told Bloomberg TV.
(Credit: Bloomberg)
Copyright 2025 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.