The stock market widened in the year-end rally. More and more stocks were participating. This continued briefly after the first of the year. But then, with the debate surrounding whether we would have a soft landing, would the Federal Reserve begin cutting rates in March or wait much longer, investors found the easier course of action was to return to the proven large-cap tech winners of last year – the “Magnificent Seven*.” The result is that all the positive returns this year again come from these same stocks.

Recently, the Bull and his partners are seeing signs that a broadening out of participation is again reasserting itself. It may be that despite good earnings, the anointed seven just have run up to extreme valuations and have limited upside from here. Much cheaper alternatives abound in the rest of the public market. These are being found and investors are showing more interest in owning them.

It may be that the “Magnificent Seven” do not collapse, but instead mark time in sideways action for a long time as fundamentals catch up to their elevated valuations. In the meantime, many other stocks produce good returns for investors. Remember, diversification is an old defensive principal in managing risk. It also has offensive characteristics in helping capture more opportunities. This is what we believe investors should now be focusing on. Cast a wider net and stay steady my friends.

*Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla

The Lonely Bull