Futures point Friday to Wall Street consolidating a four-day winning streak to 15-month highs, after cooling inflation data this week bolstered hopes the economy can escape relatively unscathed from the Federal Reserve\u2019s swift rate hike campaign.<\/p>\n
Continuing the rally may now depend on how investors perceive the second quarter corporate earnings season, which some big banks kick off today.<\/p>\n
But can the equity market reach fresh highs without the continued support of the mega technology stocks that have provided so much of the gains in recent months, and how should investors therefore navigate the challenges of such record concentration risk?<\/p>\n
That\u2019s the $11 trillion conundrum, says Savita Subramanian, strategist at Bank of America. <\/p>\n
The Magnificent 7 stocks ( Apple To gauge how to play this from now, investors need to consider five questions, addressing how we got here and thus what may happen next.<\/p>\n First, what caused this market concentration? \u201cUltra-low rates and a lackluster economy in the 2010s created the perfect petri dish for idiosyncratic, secular growth and disruptive themes to flourish,\u201d says Subramanian. <\/p>\n This combined with, among other things, market-cap weighted index inflows favoring the bigger companies, and pandemic-driven tech adoption boosting cloud and ecommerce demand. Fiscal support has helped the Mag 7 grow too, while AI has provided a fresh boost of late.<\/p>\n Next, has this happened before, and how did it end? Top heavy markets, containing perceived irrational exuberance are nothing new. says Subramanian. The trick is identifying the winners among the dross. <\/p>\n \u201cBubbles fueled by excessive leverage, democratization of markets and rampant speculation tend to end badly. But real disruptors can do well. The 2000 Tech Bubble saw consolidation and relative losses for about a decade, but 1 in 5 IPOS of the late 1990s survived and are today\u2019s blue chips.\u201d<\/p>\n So the next important question is therefore: Is today\u2019s Big Tech different from prior bubbles\u2019? Simply, yes. Bigger might be better today versus say the situation in 2000, reckons Subramanian. <\/p>\n \u201cBigger companies can afford and welcome regulation, given the moat it creates, [while] Big Tech has $200 billion net cash versus SMID Tech has net debt. For AI, scale matters: our analysts ranking for AI skews in favor of big companies (bigger datasets, more subs).\u201d<\/p>\n OK, so the situation isn\u2019t as dangerous as it was in 2000, But what are the important catalysts to watch for? There are five. <\/p>\n Finally, how can equity investors navigate these risks? Look beyond the Mag 7. \u201cIn our view, equity opportunities are likely to broaden beyond the seven stock cohort. Valuations are more attractive outside of these companies, and projected returns based on consensus are higher for the equal-weighted S&P 500,\u201d says Subramanian.<\/p>\n \u201cWe would avoid crowded, expensive tech companies with ailing share gains. But tech companies\u00a0with healthy balance sheets capturing and\/or retaining\u00a0market share leadership\u00a0should be considered\u00a0for\u00a0a core holding,\u201d she says. <\/p>\n U.S. stock-index futures YM00, NQ00, TMUBMUSD10Y, TMUBMUSD30Y, Try your hand at the Barron\u2019s crossword puzzle and sudoku games, now running daily along with a weekly digital jigsaw based on the week\u2019s cover story. To see all puzzles,\u00a0<\/strong>click here<\/strong>.<\/strong><\/p>\n Economic data due Friday include the import price index for June, published at 8: 30 a.m., and the preliminary reading of July Michigan consumer sentiment at 10 a.m.. Both times Eastern.<\/p>\n Results and forecasts from JPMorgan Chase Shares of Chinese cybersecurity companies such as Zhongfu Information Inc.\u00a0300659,\u00a019.98% were sharply higher on Friday, boosted by Beijing\u2019s latest artificial-intelligence regulations that emphasized cybersecurity and data safety.<\/p>\n European telecommunication equipment groups are not having a good day. Shares in Finland-listed Nokia St. Louis Federal Reserve President James Bullard announced Thursday that he has stepped down from his position at the regional Fed bank and will formally leave next month to become the first dean of the new business school at Purdue University in Indiana.<\/p>\n The Reserve Bank of Australia has appointed its first female Governor. Michele Bullock is promoted from Deputy Governor and will serve a seven year term.<\/p>\n Republican Attorneys General warn top U.S. businesses over \u2018discrimination\u2019.<\/p>\n \u2018It\u2019s really the Wild West\u2019: Vienna\u2019s spying problem spins out of control.<\/p>\n The U.S. Treasury hoped to aid low-income home buyers. The help went to Johnny Depp, too.<\/p>\n Here\u2019s Vanda Research on how retail investors are looking to be nimble in the face of putative market catalysts: \u201cRetail investors significantly de-risked Tuesday afternoon but chased the rally aggressively Wednesday morning following the surprise CPI miss. Given retail\u2019s predominant contrarian bias, we view this as a sign of FOMO and that we\u2019ll probably see robust inflows over the coming days if equity markets maintain their uptrend.\u201d<\/p>\n Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.<\/p>\n Hundreds of lovely dogs.<\/p>\n Evidence that bigger is not necessarily better. <\/p>\n The climate debate hits an intellectual peak. Frankly, no one comes out of this smelling good.<\/p>\n
\n AAPL,
\n
\n Alphabet
\n GOOG,
\n
\n Amazon
\n AMZN,
\n
\n Meta
\n META,
\n
\n Microsoft
\n MSFT,
\n
\n Nvidia
\n NVDA,
\n
\n and Tesla
\n TSLA,
\n
\n ) which are valued around the $11 trillion mark, have contributed 73% of the S&P 500 gains in the first half of 2023, Subramanian notes.<\/p>\n\n
Markets<\/h2>\n
\n ES00,
\n
\n
\n
\n are a touch firmer as benchmark Treasury yields
\n TMUBMUSD02Y,
\n
\n
\n
\n move higher. The dollar
\n DXY,
\n
\n is holding recent lows, while oil prices
\n CL.1,
\n
\n slip and gold
\n GC00,
\n
\n softens.<\/p>\nThe buzz<\/h2>\n
\n JPM,
\n
\n Citigroup
\n C,
\n
\n and Wells Fargo
\n WFC,
\n
\n are among the highlights as the U.S. second-quarter earnings gets into swing. So far there has been a positive reaction with shares moving higher.<\/p>\n
\n NOKIA,
\n
\n are off nearly 10% and its Swedish peer Ericsson
\n ERIC.B,
\n
\n is stumbling more than 8% after both companies\u2019 results and guidance were not well-received.<\/p>\nBest of the Web<\/h2>\n
The chart<\/h2>\n
Top tickers<\/h2>\n
\n
\n \n Ticker<\/p>\n<\/td>\n \n Security name<\/p>\n<\/td>\n<\/tr>\n \n \n TSLA,
\n \n Tesla<\/p>\n<\/td>\n<\/tr>\n \n \n NKLA,
\n \n Nikola<\/p>\n<\/td>\n<\/tr>\n \n \n NVDA,
\n \n Nvidia<\/p>\n<\/td>\n<\/tr>\n \n \n MULN,
\n \n Mullen Automotive<\/p>\n<\/td>\n<\/tr>\n \n \n NIO,
\n \n NIO<\/p>\n<\/td>\n<\/tr>\n \n \n AMC,
\n \n AMC Entertainment<\/p>\n<\/td>\n<\/tr>\n \n \n GME,
\n \n GameStop<\/p>\n<\/td>\n<\/tr>\n \n \n AAPL,
\n \n Apple<\/p>\n<\/td>\n<\/tr>\n \n \n AMZN,
\n \n Amazon.com<\/p>\n<\/td>\n<\/tr>\n \n \n COIN,
\n \n Coinbase Global<\/p>\n<\/td>\n<\/tr>\n<\/table>\n Random reads<\/h2>\n