Stock trader Reuters
The “Magnificent Seven” dominate the stock market to a worrying extent, says an expert.
Investors should be wary of an economic downturn, said Jim Reid, a senior analyst at Deutsche Bank.
The U.S. is now in the “firing line of recessions,” given when previous downturns occurred, he said.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by a real editor.
The “Magnificent Seven” dominate the stock market to a worrying extent – and investors are underestimating the risk of a recession, an expert says.
Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta and Tesla are collectively valued at more than $13 trillion, which is about a quarter of the entire US stock market.
“My natural inclination is to say this is crazy,” Jim Reid, a senior strategist at Deutsche Bank in London, said on “Merryn Talks Money” this week– A podcast. “As an economic historian, I am inclined to believe that this is nonsense and makes no sense and warns us of even more difficult times ahead.â€
However, Reid noted that the big tech giants seemed less absurdly overvalued when you consider that they collectively generated more profits than the entire stock markets of other countries. At the height of the dot-com bubble, there was far more speculation and far fewer profits, he said.
Reid also warned that the market was too relaxed about a possible recession. He is completely convinced that the US Federal Reserve will have a “soft landing” in which it combats inflation without ruining the economy. The veteran economist pointed out that talk of a soft landing spiked in the media six to 18 months before each of the past three or four recessions.
Jim Reid: Risk of recession greater today than a year ago
Additionally, recessions in the past have occurred at least 19 months after the Fed’s rate-hiking cycle began, this time last October, he said. As a result, the risk of a recession is greater today than it was a year ago, although a soft landing appears more likely. From a historical perspective, the US is now in the “firing line of recession,” said Reid.
Read too
This is how a financial planner manages her money
The stock market expert noted that Americans’ pandemic savings helped support consumer spending and avert a recession last year. But that excess cash will be used up by the end of the year, he said.
At the same time, he explained that heavily indebted commercial real estate developers will soon have to refinance at significantly higher interest rates. They are also struggling with the fact that office space is losing value, fueled by the boom in home office working.
The expert’s message: Investors cannot afford to be complacent as the market is dominated by high-flying tech stocks and the threat of recession has not yet been averted.
Read the original article Business Insider.
Read too
I was a senior analyst at Deutsche Bank: That’s why you should always have two portfolios