Investors warned against ‘Magnificent Seven’

deVere Group’s chief executive, Nigel Green, has warned investors against using ‘Magnificent Seven’ stocks as a band-aid solution to achieve secure returns and build long-term wealth.

The seven stocks that currently account for 90 per cent of gains on Wall Street’s S&P 500 so far this year, according to Green, are Apple, Microsoft, Nvidia, Amazon, Meta, Tesla and Alphabet.

“The volume is getting louder and the frenzy is reaching fever pitch about the so-called Magnificent Seven stocks.

“This hype is dangerous as it could lead investors to assume that these stocks are a silver bullet to build long-term wealth – and they are not, at least not on their own.

“While I believe that exposure to these mega-cap tech stocks should be part of almost every investor’s portfolio, as they have robust fundamentals and are future-focused, especially in AI, they should not be exclusive.”

Green highlighted that the jump in performance of these stocks has only been driven by the potential for less aggressive policy decisions from the US Federal Reserve, which is not guaranteed.

“But it must be remembered that the Fed is almost certainly not done yet with interest rate hikes, especially following Friday’s robust jobs report,” he said.

“Even if the central bank takes a pause this month, we do expect further rate rises are on their way before they bring their hiking program to an end. This could potentially hit these powerhouse stocks.”

He recommended investors look to sectors that “do well in a stagflationary environment” when it comes to selecting stocks to include in portfolios.

“These include commodities, such as oil, as their prices typically rise in response to inflation; consumer staples like food, and hygiene products, as demand is likely to remain relatively stable; healthcare, as it provides essential services that are less affected by economic cycles; and utilities, including electricity, gas, and water as demand will also be pretty consistent.

“The Magnificent Seven are incredibly important, of course, but they’re not a panacea. I fear some investors will get burned unless some of the heat is turned down.”