Earlier in the week, veteran strategist Ed Yardeni of his eponymous firm Yardeni Research effectively recommended going underweight Big Tech versus the rest of the S&P 500, expecting a shift in profit growth ahead. He was overweight information technology and communications services since 2010.
Fundamentals are also on their side. Earnings growth for the S&P 493 is projected to accelerate to 9% in 2026 from 7% this year as the earnings contribution from the seven largest companies in the S&P 500 is set to fall to 46% from 50%, according to data from Goldman Sachs Group Inc.
Investors, will want to see evidence that the S&P 493 are meeting or beating earnings expectations before getting more bullish, according to Michael Bailey, director of research at FBB Capital Partners. “If jobs and inflation data remain status quo and the Federal Reserve is still easing, we could see a bullish move in the 493 next year,” he added.
The US central bank cut interest rates for the third consecutive time on Wednesday and reiterated its view for another reduction next year.
Utilities, financials, health care, industrials, energy, and even consumer discretionary are solidly up this year, evidence that the broadening is already happening, points out Max Kettner, chief cross-asset strategist at HSBC Holdings Plc.
“For me, it’s not about whether we should buy tech or the other sectors, but more about tech and the other sectors participating too,” Kettner said. “And in my view, that should continue in the coming months too.”
