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Time for investors to have a wider stock screener.
The so-called “ Magnificent Seven” inside the S&P 500 have crowded out headlines and investor thought schools for the past year amid explosive hype around AI and profit growth. But with new narratives forming in the market — such as higher bond yields and inflated tech expectations — it may be time to sniff around the S&P's 493 other stocks.
Mag 7 names are expected to grow earnings by 18% in 2025, a slowdown from its 25% pace in 2024 — a change many upbeat investors may not be anticipating.
Chaudhuri said there are good investing opportunities this year in financials.
"Broadly the theme that we're talking about in our year ahead outlook is one of quality. It is the intersection we call of quality and growth, with an eye on valuations because obviously valuations are very important to investors," Chaudhuri explained.
Chaudhuri may be ahead of the curve on her call as earnings season unfold.
FactSet estimates that seven sectors from inside the S&P 500 should report fourth quarter earnings growth, and six should have growth in the double-digits. The financials sector is slated to chime in with the highest profit increase in the quarter at 39.5%.
“If you look at earnings growth expectations, not just for Q4, but in Q1 for financials is where we’re expecting to see some of the strongest earnings growth come through after tech and comp services,” notes Chaudhuri.
FactSet says that double-digit profit growth should also hit information technology, consumer discretionary, healthcare, utilities, and communications services names.
In addition to seeking quality and growth, “we’re talking about this concept of growth at a reasonable price,” said Chaudhuri. “We look at strong, healthy balance sheets, low leverage, and companies that are really able to have repetitive earnings growth.”
In some respects, buying the S&P 500's 493 other stocks at reasonable valuations may be a sort of defensive trade in the current environment.
The latest jobs report sent stocks on a downward spiral . Headlines abounded detailing how the Dow Jones Industrial Average lost nearly 700 points as wary investors react to potentially fewer Fed rate cuts.
Meanwhile, 10-year bond yields creeping toward 5% have rattled investors in the Mag 7 names —a trade that usually works best when yields are below 4%.
Read more: why the bull stampede in stocks may just be starting
Year to date, Mag 7 name Nvidia ( NVDA ) is down 4%, Amazon ( AMZN ) is off by 2%, Apple ( AAPL ) is down 8%, Microsoft ( MSFT ) is down 2% and Alphabet ( GOOGL ) has dropped 1%. The lone outperformers are Meta ( META ) and Tesla ( TSLA ), likely on fresh efforts by CEOs Mark Zuckerberg and Elon Musk to curry favor with the incoming Trump administration .
“We are beginning to see that there can be micro narratives that take hold of the market,” said Chaudhuri. “They’re going to be more prevalent in 2025. One of the ways we think investors can actually take advantage of that is being a little bit more dynamic in their portfolios.”
Brian Sozzi fields insight-filled conversations and chats with the biggest names in business and markets on Opening Bid . You can find more episodes on our video hub or watch on your preferred streaming service .
Grace Williams is a writer for Yahoo Finance.
