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The left chart, courtesy of JP Morgan, shows the stock concentration in the S&P 500 since the 1960s. Unfortunately, concentration risk can worsen, as we saw in the Nifty 50 era. Brace yourself, as Astoria thinks we are still in the early stages of this AI trade.
We still argue that there is a once-in-a-decade opportunity to own the non-Magnificent Seven stocks. We entered 2024 more bullish than in the past two years. Refer to ‘2024: A New Cycle Begins’ for our outlook. We’ve done countless interviews/podcasts (Schwab, Barron’s, Zacks, Bloomberg).
We have peak earnings this week with many large-cap technology stocks reporting. Thus far, this earnings season has been underwhelming. The bar was lowered, and beats were weaker than in previous years. There’s been a wide variance (big misses are being punished while notable beats are being rewarded). This has had a “zero-ing out effect.” If some big tech leaders report favorable earnings, expect the concentration risk to worsen.
Our gut tells us we are in the 2nd or 3rd inning of the AI trade. Remember, in our equal-weight quality strategy, as well as our other equal-weight stock strategies, we made sure that we sector-optimized against the S&P 500 so that we wouldn’t be underweight semiconductors or technology as a whole.
This cycle will be defined as the one that was stronger and longer than anyone envisioned. Markets reached an all-time high last week. Contrary to popular opinion, when markets reach ATH, they historically have trended higher.
Don’t obsess over AI and whether it’s a bubble. It’s more prudent to be fully invested, own a balanced portfolio, spread your factor risk, and have a more constructive game plan for wealth accumulation. $1 trillion went into money markets last year. It’s time for that money to find its way into corporate credit and equities.
Frank Tedesco and I will be at the Exchange ETF conference. I am speaking on Sunday, Feb. 11, at 4:10 pm. Here is the agenda. You can email Frank if you would like to set up a time to meet.
Warranties & Disclaimers
There are no warranties implied. Past performance is not indicative of future results. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. The returns in this report are based on data from frequently used indices and ETFs. This information contained herein has been prepared by Astoria Portfolio Advisors LLC on the basis of publicly available information, internally developed data, and other third-party sources believed to be reliable. Astoria Portfolio Advisors LLC has not sought to independently verify information obtained from public and third-party sources and makes no representations or warranties as to the accuracy, completeness, or reliability of such information. Astoria Portfolio Advisors LLC is a registered investment adviser located in New York. Astoria Portfolio Advisors LLC may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.
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