Some investors are choosing to take profits on equities due to signs of a potential temporary market pullback.
Equity strategists at U.S. investment bank Jefferies are maintaining their long positions in the "Magnificent Seven" group of major US tech companies, but urged clients to reconsider their other long bets.
Jefferies has been bullish on equities for the past three months, driven by shifting investor sentiment indicators. However, analysts at the firm believe the "amber light" warning is flashing, as indicated in a recent interview.
According to analysts, central banks might delay interest rate cuts longer than expected due to persistent inflation, despite slower economic growth. They remain optimistic about equities for 2024, predicting a stronger second half of the year supported by monetary easing and increased fiscal spending, influenced by global elections.
Analysts differentiate the "Magnificent Seven" stocks—Apple, Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Meta (NASDAQ:META), and Tesla—not just as tech entities but as quality stocks with high and stable profits.
This distinction is crucial as they anticipate a shift towards quality stocks by investors in response to an impending slowdown over the next few months.
Furthermore, they see significant growth potential in artificial intelligence and other tech sectors, suggesting the business cycle for these stocks is still in its early stages.
While Jefferies expects US stock markets to outperform their European counterparts, due to Europe's closer economic ties with China, it expresses a preference for European financial stocks over American ones.