00:00 Speaker A
dominance of the so-called magnificent seven stocks may be fading. Longtime bull Ed Yardeni is now effectively underweight the Mag 7, ending a 15-year bet on Big Tech. I want to bring in Gina Martin Adams, HB wealth chief market strategist, here with me in the studio. I’m so excited to have her here. We were long-time colleagues as well at Bloomberg, so it’s good to see you, Gina.
00:23 Gina Martin Adams
Absolutely. Thank you. So glad to be here.
00:26 Speaker A
And I know this is something that you’re watching really closely as well, as most people in the market are, right? This sort of gap between Mag 7 and everything else. Not just from a valuation perspective, but from an earnings power perspective.
00:41 Gina Martin Adams
Yeah.
00:42 Speaker A
So what happens in 2026 to that relationship?
00:45 Gina Martin Adams
Well, it’s going to be really interesting because if the analyst consensus is correct, and that is maybe a big if, but nonetheless, we’ll go with that. We should start to see the gap between the Mag 7 and the rest of the equity market start to close. We should start to see this enormous earnings power wane somewhat. This has actually been happening a little bit behind the scenes. 2024 was peak Mag 7 earnings growth, peak tech earnings growth in fact. That earnings growth slowed a touch into 2025, but because we had so much uncertainty emerge with respect to tariffs, where were interest rates going, slow economic conditions, the rest of the index really didn’t put up much earnings acceleration. That’s expected to change in 2026. The analyst consensus is thinking, look, the Fed’s going to reduce interest rates, we’re going to get some tax refunds coming in 2026. Maybe we’ll have a little bit of stability emerge on the trade front, and the rest of the index can create some earnings growth. If that gap starts to close, we might start to see some rotation into those non-tech stocks. And indeed, that’s what we’ve seen over the course of the last eight, four to six weeks, is the non-tech stocks getting a little bit of attention while tech stocks, in particular the Mag 7, lose a little bit of of the market’s mind.
02:08 Speaker A
So do you agree then that it’s time to effectively underweight the Mag 7 or at least rebalance away from it a little bit?
02:16 Gina Martin Adams
I think what you’re seeing frankly is a little bit of dispersion start to emerge in the emerge in the Mag 7. There are winners and losers emerging. There are good reasons to anticipate that that’s likely to be the case going into 2026. It’s no longer one big trade. It’s no longer sort of the pocket of strength that all investors can rely on as more opportunities emerge and maybe some disturbances start to emerge in the Mag 7. Certainly, the AI trade has been all the rage over the course of the last several years in the equity market, really powering this enormous valuation gap as well as an earnings gap. As that closes, the winners and losers should come to light. Uh, not everybody’s going to be a winner in AI, right? We’re going to find out who the leadership probably is into 2026. One of the things that nobody’s talking about also though is we might start to see IPOs emerge. Two of the world’s biggest private companies are AI operators as well with Anthropic and OpenAI. There’s been these rumors of OpenAI maybe coming to the market in 2026 into 2027. That’s going to create some opportunities for public equity investors as well, which have really been trapped in few names that they can play on the AI idea. So if we have more options of supply, that could create some disturbance if you will in the Mag 7.
